ThZeal - The Zeal

Large accelerated filer

Accelerated filer

Non-accelerated
filer

☐
(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2021

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

Commission File Number:

001-35429

BRIGHTCOVE INC.

(Exact name of registrant as specified in its charter)


Delaware		20-1579162
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

290 Congress Street

Boston, MA 02210

(Address of principal executive offices)

(888)

882-1880

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	BCOV	The NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes

☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes

☐

No ☒

As of April 22, 2021 there

were

40,348,891

shares of the registrant’s common stock, $0.001 par value per share, outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form

10-Q

contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form

10-Q

that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Such forward-looking statements include any expectation of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results; statements related to adding employees; statements related to potential benefits of acquisitions; 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 I of this Quarterly Report on Form

10-Q,

and the risks discussed in our other Securities and Exchange Commission, or 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. Forward-looking statements in this Quarterly Report on Form

10-Q

may include statements about:

•

our ability to achieve profitability;

•

our competitive position and the effect of competition in our industry;

•

our ability to retain and attract new customers;

•

our ability to penetrate existing markets and develop new markets for our services;

•

our ability to retain or hire qualified accounting and other personnel;

•

our ability to successfully integrate acquired businesses;

•

our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

•

our ability to maintain the security and reliability of our systems;

•

our estimates with regard to our future performance and total potential market opportunity;

•

our estimates regarding our anticipated results of operations, future revenue, bookings growth, capital requirements and our needs for additional financing; and

•

our goals and strategies, including those related to revenue and bookings growth.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Brightcove Inc.

Condensed Consolidated Balance Sheets

(unaudited)


	March 31, 2021			December 31, 2020
	(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents	$	35,152		$	37,472
Accounts receivable, net of allowance of $643 and $648 at March 31, 2021 and December 31, 2020, respectively		30,594			29,305
Prepaid expenses		8,696			5,760
Other current assets		13,972			12,978

Total current assets		88,414			85,515
Property and equipment, net		16,188			15,968
Operating lease right-of-use asset		7,722			8,699
Intangible assets, net		9,699			10,465
Goodwill		60,902			60,902
Other assets		6,143			5,254

Total assets	$	189,068		$	186,803

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,556		$	10,456
Accrued expenses		21,119			25,397
Operating lease liability		3,615			4,346
Deferred revenue		58,889			58,741

Total current liabilities		95,179			98,940
Operating lease liability, net of current portion		4,625			5,498
Other liabilities		1,397			2,763

Total liabilities	$	101,201			107,201
Commitments and contingencies (Note 8 )
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; 40,412,577 and 40,152,021 shares issued at March 31, 2021 and December 31, 2020, respectively		40			40
Additional paid-in capital		290,403			287,059
Treasury stock, at cost; 135,000 shares		(871	)		(871	)
Accumulated other comprehensive loss		(397	)		(188	)
Accumulated deficit		(201,308	)		(206,438	)

Total stockholders’ equity		87,867			79,602

Total liabilities and stockholders’ equity	$	189,068		$	186,803

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Brightcove Inc.

Condensed Consolidated Statements of Operations

(unaudited)


	Three Months Ended March 31,
	2021			2020
	(in thousands, except share and per share data)
Revenue:
Subscription and support revenue	$	50,839		$	44,658
Professional services and other revenue		3,978			1,995

Total revenue		54,817			46,653
Cost of revenue:
Cost of subscription and support revenue		15,678			16,748
Cost of professional services and other revenue		3,490			1,894

Total cost of revenue		19,168			18,642

Gross profit		35,649			28,011
Operating expenses:
Research and development		8,284			8,853
Sales and marketing		16,149			14,174
General and administrative		7,059			6,532
Merger-related		—			5,509
Other (benefit) expense		(1,965	)		—

Total operating expenses		29,527			35,068

Income (loss) from operations		6,122			(7,057	)
Other expense, net		(735	)		(468	)

Income (loss) before income taxes		5,387			(7,525	)
Provision for income taxes		257			328

Net income (loss)	$	5,130		$	(7,853	)
Net income (loss) per share—basic and diluted
Basic	$	0.13		$	(0.20	)
Diluted	$	0.12		$	(0.20	)
Weighted-average shares—basic and diluted
Basic		40,154,035			38,981,140
Diluted		42,480,121			38,981,140

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Brightcove Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)


	Three Months Ended March 31,
	2021			2020
	(in thousands, except share data)
Shares of common stock issued
Balance, beginning of period		40,152,021			39,042,787
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units		260,556			63,066

Balance, end of period		40,412,577			39,105,853

Shares of treasury stock
Balance, beginning of period		(135,000	)		(135,000	)

Balance, end of period		(135,000	)		(135,000	)

Par value of common stock issued
Balance, beginning of period	$	40		$	39
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units		—			—

Balance, end of period	$	40		$	39

Value of treasury stock
Balance, beginning of period	$	(871	)	$	(871	)

Balance, end of period	$	(871	)	$	(871	)

Additional paid-in capital
Balance, beginning of period	$	287,059		$	276,365
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units, net of tax		1,008			36
Stock-based compensation expense		2,336			2,713

Balance, end of period	$	290,403		$	279,114

Accumulated deficit
Balance, beginning of period	$	(206,438	)	$	(200,625	)
Net income (loss)		5,130			(7,853	)

Balance, end of period	$	(201,308	)	$	(208,478	)

Accumulated other comprehensive loss
Balance, beginning of period	$	(188	)	$	(785	)
Foreign currency translation adjustment		(209	)		(459	)

Balance, end of period	$	(397	)	$	(1,244	)

Total stockholders’ equity	$	87,867		$	68,560

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Brightcove Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Three Months Ended March 31,
	2021			2020
	(in thousands)
Operating activities
Net income (loss)	$	5,130		$	(7,853	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		2,163			2,408
Stock-based compensation		2,292			2,618
Provision for reserves on accounts receivable		71			275
Changes in assets and liabilities:
Accounts receivable		(1,585	)		3,607
Prepaid expenses and other current assets		(1,390	)		(1,843	)
Other assets		(919	)		195
Accounts payable		(425	)		2,364
Accrued expenses		(5,797	)		(2,264	)
Operating leases		(626	)		(34	)
Deferred revenue		482			2,968

Net cash (used in) provided by operating activities		(604	)		2,441
Investing activities
Purchases of property and equipment		(468	)		(720	)
Capitalized internal-use software costs		(1,054	)		(1,973	)

Net cash used in investing activities		(1,522	)		(2,693	)
Financing activities
Proceeds from exercise of stock options		1,095			36
Deferred acquisition payments		(475	)		—
Proceeds from debt		0			10,000
Other financing activities		(87	)		(26	)

Net cash provided by financing activities		533			10,010
Effect of exchange rate changes on cash and cash equivalents		(727	)		(428	)

Net (decrease) increase in cash and cash equivalents		(2,320	)		9,330
Cash and cash equivalents at beginning of period		37,472			22,759

Cash and cash equivalents at end of period	$	35,152		$	32,089

Supplemental disclosure of cash flow information
Cash paid for operating lease liabilities	$	1,226		$	1,824

The accompanying notes are an integral part of these condensed consolidated financial statements.

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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.

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form

10-K

for the year ended December 31, 2020.

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, 2020 contained in the Company’s Annual Report on Form

10-K

and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position for the three months ended March 31, 2021 and 2020. These interim periods are not necessarily indicative of the results to be expected for any other interim period or the full year.

2. Quarterly Update to Significant Accounting Policies

Allowance for Doubtful Accounts

The following details the changes in the Company’s reserve allowance for estimated credit losses for accounts receivable for the period:


	Allowance for Credit Losses
	(in thousands)
Balance as of December 31, 2020	$	648
Current provision for credit losses		46
Write-offs against allowance		(51	)
Recoveries		—
Balance as of March 31, 2021	$	643

Estimated credit losses for unbilled trade accounts receivable were not material.

Other (Benefit) Expense

Other (benefit) expense, reflects other operating costs (or benefits) that do not directly relate to research and development, sales and marketing, general and administrative, and merger related.

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On March 27, 2020, in response to the

COVID-19

pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act which was amended by the Consolidated Appropriations Act in December of 2020 (the “CARES Act”). The CARES Act provides numerous tax provisions and other stimulus measures, including the creation of certain refundable employee

retention credits. In the first quarter of 2021, the Company recognized a benefit of $1,965 from the CARES Act related to employee retention credits. The Company recognizes such government relief when it is reasonably assured that it qualifies for the relief, the underlying expense has been incurred and it is probable that the Company will receive it. Credits associated with government relief are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expense the related costs for which the relief is intended to compensate.

3. Revenue from Contracts with Customers

The Company primarily derives revenue from the sale of its online video platform, which enables its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner. Revenue is derived from three primary sources: (1) the subscription to its technology and related support; (2) hosting, bandwidth and encoding services; and (3) professional services, which

include initiation, set-up and customization

services.

The following summarizes the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers.


	Accounts Receivable, net		Contract Assets (current)		Deferred Revenue (current)		Deferred Revenue (non- current)		Total Deferred Revenue
Balance at December 31, 2020	$	29,305	$	2,078	$	58,741	$	811	$	59,552
Balance at March 31, 2021		30,594		2,002		58,889		711		59,600

Revenue recognized during the three months ended March 31, 2021 from amounts included in deferred revenue at the beginning of the period

was approximately $31.2 million. During the three months ended March 31, 2021, the Company did not recognize a material amount of revenue from performance obligations satisfied or partially satisfied in previous periods.

The assets recognized for costs to obtain a contract were $12.9 million as of March 31, 2021 and $13.3 million as of December 31, 2020. Amortization expense recognized during the three months ended March 31, 2021 and 2020 related to costs to obtain a contract was $3.1 million and $1.6 million, respectively.

Transaction Price Allocated to Future Performance Obligations

As of March 31, 2021, the total aggregate transaction price allocated to the unsatisfied performance obligations for subscription and support contracts was approximately $147.6 million, of which approximately $117.1 million is expected to be recognized over the next 12 months. The Company expects to recognize substantially all of the remaining unsatisfied performance obligations by December 2024.

4. Cash and Cash Equivalents

Cash and cash equivalents as of March 31, 2021 consist of the following:


	March 31, 2021
Description	Contracted Maturity		Cost		Fair Market Value
Cash		Demand	$	35,111	$	35,111
Money market funds		Demand		41		41

Total cash and cash equivalents			$	35,152	$	35,152

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Cash and cash equivalents as of December 31, 2020 consist of the following:


	December 31, 2020
Description	Contracted Maturity		Cost		Fair Market Value
Cash		Demand	$	37,431	$	37,431
Money market funds		Demand		41		41

Total cash and cash equivalents			$	37,472	$	37,472

Earnings (Loss) per Share

The Company calculates basic and diluted earnings (loss) per common share by dividing the earnings (loss) amount by the number of common shares outstanding during the period. The calculation of diluted earnings (loss) per common share includes the effects of the assumed exercise of any outstanding stock options and the assumed vesting of shares of

estricted stock awards, where dilutive.

The following table set forth the computations of basic and diluted earnings per share:


	Three Months Ended March 31,
	2021
Net income (in thousands)	$	5,130
Weighted average shares used in computing basic earnings per share		40,154,035
Effect of weighted average dilutive stock-based awards		2,326,086

Weighted average shares used in computing diluted earnings per share		42,480,121
Net income per share—basic and diluted
Basic	$	0.13
Diluted	$	0.12

The following outstanding common shares have been excluded from the computation of dilutive earnings (loss) per share as of March 31, 2021 and 2020, because such securities are anti-dilutive:


	Three Months Ended March 31,
	2021		2020
Options outstanding		34,150		2,487,153
Restricted stock units outstanding		67,751		3,726,412

6. Stock-based Compensation

The weighted-average assumptions utilized to determine the weighted-average fair value of options are presented in the following table:


	Three Months Ended March 31,
	2021			2020
Weighted-average fair value of options granted during the period	$	10.55		$	3.37
Risk-free interest rate		1.00	%		1.20	%
Expected volatility		47	%		44	%
Expected life (in years)		6.3			6.2
Expected dividend yield		—			—

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As of March 31, 2021, there wa

19.1

million of unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a weighted-average period of

1.98

years.

The following table summarizes stock-based compensation expense as included in the consolidated statement of operations for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
	2021		2020
Stock-based compensation:
Cost of subscription and support revenue	$	157	$	190
Cost of professional services and other revenue		68		80
Research and development		322		440
Sales and marketing		737		911
General and administrative		1,008		997

	$	2,292	$	2,618

The following is a summary of the stock option activity during the three months ended March 31, 2021.


	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value (1)
Outstanding at December 31, 2020		2,110,486		$	9.19
Granted		20,150			22.90
Exercised		(121,537	)		9.01			$	1,495
Canceled		(29,126	)		9.87

Outstanding at March 31, 2021		1,979,973		$	9.35		6.38	$	21,385

Exercisable at March 31, 2021		1,182,978		$	8.73		5.40	$	13,479

(1)	The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Company’s common stock on March 31, 2021 of $20.12 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 for our service-based awards

(“S-RSU”)

and our performance-based awards

(“P-RSU”)

during the three months ended March 31, 2021:


	S-RSU Shares			Weighted Average Grant Date Fair Value		P-RSU Shares		Weighted Average Grant Date Fair Value		Total RSU Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2020		2,000,416		$	10.40		1,587,801	$	10.30		3,588,217		$	10.35
Granted		67,750			22.90		—		—		67,750			22.90
Vested and issued		(98,416	)		8.02		—		—		(98,416	)		8.02
Canceled		(105,421	)		9.97		—		—		(105,421	)		9.97

Unvested at March 31, 2021		1,864,329		$	11.00		1,587,801	$	10.30		3,452,130		$	10.68

7. Income Taxes

The income tax expense relates principally to the Company’s foreign operations.

The Company is required to compute income tax expense in each jurisdiction in which it operates. This process requires the Company to project its current tax liability and estimate its deferred tax assets and liabilities, including net operating loss (“NOL”) and tax credit carry-forwards. In assessing the ability to realize the net deferred tax assets, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

The Company has provided a valuation allowance against its remaining U.S. net deferred tax assets as of March 31, 2021 and December 31, 2020, based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences.

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8. 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.

Guarantees and Indemnification Obligations

The Company typically enters into indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses and costs incurred by the indemnified party, generally the Company’s customers, in connection with patent, copyright, trade secret, or other intellectual property or personal right infringement claims by third parties with respect to the Company’s technology. The term of these indemnification agreements is

generally perpetual after execution of the agreement. Based on when customers first subscribe for the Company’s service, the maximum potential amount of future payments the Company could be required to make under certain of these indemnification agreements is unlimited, however, more recently the Company has typically limited the maximum potential value of such potential future payments in relation to the value of the contract. Based on historical experience and information known as of March 31, 2021, the Company has not incurred any costs for the above guarantees and indemnities. The Company has received requests for indemnification from customers in connection with patent infringement suits brought against the customer by a third party. To date, the Company has not agreed that the requested indemnification is required by the Company’s contract with any such customer.

In certain circumstances, the Company warrants that its products and services will perform in all material respects in accordance with its standard published specification documentation in effect at the time of delivery of the licensed products and services to the customer for the warranty period of the product or service. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes the estimated fair value of these agreements is immaterial.

9. Debt

December 28, 2020

, the Company entered into an amended and restated loan and security agreement with a lender (the “Loan Agreement”) providing for up to a $

30.0

million asset-based line of credit (the “Line of Credit”). Borrowings under the Line of Credit are secured by substantially all of the Company’s assets, excluding its intellectual property. Outstanding amounts under the Line of Credit accrue interest at a rate as follows: (i) for prime rate advances, the greater of (A) the prime rate and (B)

%, and (ii) for LIBOR advances, the greater of (A) the LIBOR rate plus

225

basis points and (B)

%. 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 covenants, or the occurrence of an event of default, could permit the lenders under the Line of Credit to declare all amounts borrowed under the Line of Credit, together with accrued interest and fees, to be immediately due and payable. The Line of Credit agreement will expire on

December 28, 2023

. The Company was in compliance with all covenants under the Line of Credit as of March 31, 2021 and there were

borrowings outstanding as of March 31, 2021.

10. 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 March 31,
	2021		2020
Revenue:
North America	$	30,386	$	24,999
Europe		8,923		8,461
Japan		7,708		6,102
Asia Pacific		7,659		6,870
Other		141		221

Total revenue	$	54,817	$	46,653

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North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers located in the United States was

$28.5

million and

$23.0

million

during the three months ended March 31, 2021 and 2020, respectively. Other than the United States and Japan, no other country contributed more than 10% of the Company’s total revenue during the three months ended March 31, 2021 and 2020.

As of March 31, 2021 and December 31, 2020, property and equipment at locations outside the U.S. was not material.

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Company Overview

We are a leading global provider of cloud-based services for video. We were incorporated in Delaware in August 2004. With our Emmy

-winning technology and award-winning services, we help our customers realize the potential of video to address business-critical challenges. Customers rely on our suite of products, services, and expertise to reduce the cost and complexity associated with publishing, distributing, measuring and monetizing video across devices.

We sell five core video products that help our customers use video to further their businesses in meaningful ways: (1) Video Cloud, our flagship product and the world’s leading online video platform, enables our customers to quickly and easily distribute high-quality video to Internet-connected devices; (2) Brightcove Live, our industry-leading solution for live streaming, delivers high-quality viewer experiences at scale; (3) Brightcove Beacon, a purpose-built application that enables companies to launch premium OTT video experiences quickly and cost effectively, across devices and with the flexibility of multiple monetization models; (4) Brightcove Player, an exceptionally fast, cloud-based technology for creating and managing video experiences; and (5) Zencoder, a powerful, cloud-based video encoding technology.

Customers can complement their use of our core products with modular technologies that provide enhanced capabilities such as (1) innovative ad insertion and video stitching through Brightcove SSAI; (2) efficient publication of videos to Facebook, Twitter, and YouTube through Brightcove Social; (3) an app for creating marketing campaigns with insightful data and industry benchmarks through Brightcove Campaign; (4) simple streaming of video communications to an app through Brightcove Engage; and (5) create branded video experience by accessing templates with

built-in

best practices through Brightcove Gallery.

We have also brought to market several video solutions, which are comprised of a suite of video technologies that address specific customer

use-cases

and needs: (1) Virtual Events Experience helps brands to transform events into customized virtual experiences; (2) Brightcove Video Marketing Suite, enables marketers to use video to drive brand awareness, engagement and conversion; and (3) Brightcove Enterprise Video Suite, provides 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.

As of March 31, 2021 and 2020 we had 652 and 621 employees, respectively.

We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue grew from $46.7 million in the three months ended March 31, 2020 to $54.8 million in the three months ended March 31, 2021, due to an increase in the average annual subscription revenue per premium customer.

Included in the $5.1 million consolidated net income for the three months ended March 31, 2021 was stock-based compensation expense and amortization of acquired intangible assets of $2.3 million, and $766, respectively. Included in the $7.9 million consolidated net loss for the three months ended March 31, 2020 was merger-related expense, stock-based compensation expense, and amortization of acquired intangible assets of $5.5 million, $2.6 million, and $972, respectively.

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For the three months ended March 31, 2021 and 2020, our revenue derived from customers located outside North America was 44

and 46%, 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.

The following table includes our key metrics for the periods presented:


	Three Months Ended March 31,
	2021			2020
Customers (at period end)
Premium		2,273			2,293
Volume		1,039			1,205

Total customers (at period end)		3,312			3,498

Recurring dollar retention rate		85	%		88	%
Average annual subscription revenue per premium customer, excluding Starter edition customers (in thousands)	$	97.0		$	84.6
Average annual subscription revenue per premium customer for Starter edition customers only (in thousands)	$	4.3		$	4.5
Total backlog, excluding professional services engagements (in millions)	$	147.6		$	125.5
Total backlog to be recognized over next 12 months, excluding professional services engagements (in millions)	$	117.1		$	100.5

•

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 SSAI customers, our Player customers, our OTT Flow customers (OTT Flow is our partner-based OTT platform, which preceded Brightcove Beacon), our Virtual Event Experience customers, our Video Marketing Suite customers, our Enterprise Video Suite customers, our Brightcove Beacon customers, Brightcove Engage customers and our Brightcove Campaign 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.

Our

go-to-market

focus and growth strategy is to expand our premium customer base, as we believe our premium customers represent a greater opportunity for our solutions. Premium customers decreased compared to the prior period due to some customers deciding to switch to

in-house

solutions or other third-party solutions and some customers acquired in the Ooyala acquisition deciding not to switch to our solution. Volume customers decreased in recent periods 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 2021 and beyond as we continue to focus on the market for our premium solutions.

•

Recurring Dollar Retention Rate

. We assess our ability to retain customers using a metric we refer to as our recurring dollar retention rate. We calculate the recurring dollar retention rate by dividing the retained recurring value of subscription revenue for a period by the previous recurring value of subscription revenue for the same period. We define retained recurring value of subscription revenue as the committed subscription fees for all contracts that renew in a given period, including any increase or decrease in contract value. We define previous recurring value of subscription revenue as the recurring value from committed subscription fees for all contracts that expire in that same period. We typically calculate our recurring dollar retention rate on a monthly basis. Recurring dollar retention rate provides visibility into our ongoing revenue.

•

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. As our Starter edition has a price point of $199 or $499 per month, we disclose the average annual subscription revenue per premium customer separately for Starter edition customers and all other premium customers.

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While the implications of

the COVID-19 pandemic

remain uncertain, we plan to continue to make investments to support business growth. We believe that the growth of our business is dependent on many factors, including our ability to expand our customer base, increase adoption of our product offerings within existing customers, develop new products and applications to extend the functionality of our products and provide a high level of customer service. We expect to invest in sales and marketing to support customer growth. We also expect to invest in research and development as we continue to introduce new products and applications to extend the functionality of our products. We intend to maintain a high level of customer service and support which we consider critical for our continued success. We also expect to continue to incur general and administrative expenses to support our business and to maintain the infrastructure required to be a public company. We expect to use our cash flow from operations and, if necessary, our credit facility to fund operations.

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. All premium editions include functionality to publish and distribute video to Internet-connected devices, with higher levels of premium editions providing additional features and functionality. 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, transcoding and storage. We also offer gold, platinum and platinum plus support to our premium customers for an additional fee. 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, transcoding and storage. Should a customer’s usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements. The second product line is comprised of our volume product edition. Our volume editions target

small and medium-sized businesses, or

SMBs. The volume editions provide customers with the same basic functionality that is offered in our premium product editions but have been designed for customers who have lower usage requirements and do not typically require advanced features and functionality. We discontinued the lower level pricing options for the Express edition of our volume offering and expect the total number of customers using the Express edition to continue to decrease. Customers who purchase the volume editions generally

enter into month-to-month agreements.

Volume customers are generally billed on a monthly basis and pay via a credit card.

Virtual Events Experience, Brightcove Live and Brightcove Player are offered to customers on a subscription basis. Customer arrangements are

typically one-year contracts,

which include a subscription to Virtual Events Experience, Brightcove Live or the Brightcove Player, basic support and

a pre-determined amount

of video streams, bandwidth, transcoding, and storage and only video streams for Brightcove Player. We also offer gold, platinum, and platinum plus support to our Virtual Events Experience, Brightcove Live and Brightcove Player customers for an additional fee. The pricing for these products is based on the value of our software, as well as, the number of users, accounts and usage. Should a customer’s usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements.

Zencoder is offered to customers on a subscription basis, with either committed contracts or

pay-as-you-go

contracts. The pricing is based on usage, which is comprised of minutes of video processed. The committed contracts include a fixed number of minutes of video processed. Should a customer’s usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements. 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.

Brightcove Beacon and Brightcove Campaign are each offered to customers on a subscription basis, with varying levels of functionality, usage entitlements and support based on the size and complexity of a customer’s needs. Customer arrangements are typically

one-year

contracts.

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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 (for Video Marketing Suite customers), viewers (for Enterprise Video Suite customers), bandwidth and storage 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, viewers, bandwidth and storage or videos. Should a customer’s usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements, or will require the customer to upgrade its package upon renewal. 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.

All Brightcove Beacon, OTT Flow, Brightcove Campaign, Brightcove Live, SSAI, Player, Virtual Events Experience, Video Marketing Suite and Enterprise Video Suite customers are considered premium customers.

Professional Services and Other Revenue

— Professional services and other revenue consists of services such as implementation, software customizations and project management for customers who subscribe to our premium editions. These arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed, or on a time and materials basis.

Cost of Revenue

Cost of subscription, support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services. These costs include salaries, benefits, incentive compensation and stock-based compensation expense related to the management of our data centers, our customer support team and our professional services staff. In addition to these expenses, we incur third-party service provider costs such as data center and content delivery network, or CDN, expenses, allocated overhead, depreciation expense and amortization of

capitalized internal-use software

development costs and acquired intangible assets. We allocate overhead costs such as rent, utilities and supplies to all departments based on relative headcount. As such, general overhead expenses are reflected in cost of revenue in addition to each operating expense category. The costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscription and support services due to the labor costs of providing professional services.

Cost of revenue increased in absolute dollars from the first three months of 2020 to the first three months of 2021. In future periods we expect our cost of revenue will increase in absolute dollars as our revenue increases. Cost of revenue as a percentage of revenue could fluctuate from period to period depending on the number of our professional services engagements and any associated costs relating to the delivery of subscription services and the timing of significant expenditures. To the extent that our customer base grows, we intend to continue to invest additional resources in expanding the delivery capability of our products and other services. The timing of these additional expenses could affect our cost of revenue, both in terms of absolute dollars and as a percentage of revenue, in any particular quarterly or annual period.

Operating Expenses

We classify our operating expenses as follows:

Research and Development

. Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, incentive compensation and stock-based compensation, in addition to the costs associated with contractors and allocated overhead. We have focused our research and development efforts on expanding the functionality and scalability of our products and enhancing their ease of use, as well as creating new product offerings. We expect research and development expenses to increase in absolute dollars as we intend to continue to periodically release new features and functionality, expand our product offerings, continue the localization of our products in various languages, upgrade and extend our service offerings, and develop new technologies. Over the long term, we believe that research and development expenses as a percentage of revenue will decrease, but will vary depending upon the mix of revenue from new and existing products, features and functionality, as well as changes in the technology that our products must support, such as new operating systems or new Internet-connected devices.

Sales and Marketing

. Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, incentive compensation, commissions, stock-based compensation and travel costs, amortization of acquired intangible assets, in addition to costs associated with marketing and promotional events, corporate communications, advertising, other brand building and product marketing expenses and allocated overhead. Our sales and marketing expenses have increased in absolute dollars in each of the last three years. We intend to continue to invest in sales and marketing and expand the sale of our product offerings within our existing customer base, build brand awareness and sponsor additional marketing events. Accordingly, we expect sales and marketing expense to continue to be our most significant operating expense in future periods. 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. General and administrative expenses also include the costs associated with professional fees, insurance premiums, other corporate expenses and allocated overhead. Over the long term, we believe that general and administrative expenses as a percentage of revenue will decrease.

Merger-related

. Merger-related costs consist of expenses related to mergers and acquisitions, integration costs and general corporate development activities.

Other (Benefit) Expense

. Reflects other operating benefits, costs that do not directly relate to the operating activities listed above.

Other Income (Expense), net

Other income (expense) consists primarily of interest income earned on our cash, cash equivalents, and foreign exchange gains and losses.

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 U.S. net deferred tax assets at December 31, 2020. We maintain net deferred tax liabilities for temporary differences related to our Japanese subsidiary.

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 grant date 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 March 31, 2021 and 2020, we recorded $2.3 million and $2.6 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. 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 the percentage of total net revenue derived from outside North America to increase in future periods as we continue to expand our international operations.

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, income taxes, business combinations, intangible assets and goodwill to be our critical accounting policies and estimates.

For a detailed explanation of the judgments made in these areas, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form

10-K

for the year ended December 31, 2020, which we filed with the Securities and Exchange Commission on February 24, 2021.

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, 2020.


	Three Months Ended March 31,
	2021			2020
	(in thousands, except share and per share data)
Revenue:
Subscription and support revenue	$	50,839		$	44,658
Professional services and other revenue		3,978			1,995

Total revenue		54,817			46,653
Cost of revenue:
Cost of subscription and support revenue		15,678			16,748
Cost of professional services and other revenue		3,490			1,894

Total cost of revenue		19,168			18,642

Gross profit		35,649			28,011
Operating expenses:
Research and development		8,284			8,853
Sales and marketing		16,149			14,174
General and administrative		7,059			6,532
Merger-related		—			5,509
Other (benefit) expense		(1,965	)		—

Total operating expenses		29,527			35,068

Income (loss) from operations		6,122			(7,057	)
Other expense, net		(735	)		(468	)

Income (loss) before income taxes		5,387			(7,525	)
Provision for income taxes		257			328

Net income (loss)	$	5,130		$	(7,853	)
Net income (loss) per share—basic and diluted
Basic	$	0.13		$	(0.20	)
Diluted	$	0.12		$	(0.20	)
Weighted-average shares—basic and diluted
Basic		40,154,035			38,981,140
Diluted		42,480,121			38,981,140

Overview of Results of Operations for the Three Months Ended March 31, 2021 and 2020

Total revenue increased by 18%, or $8.2 million, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 due to an increase in subscription and support revenue of 14%, or $6.2 million, primarily due to an increase in average revenue per premium customer of 14.7%. Professional services and other revenue also increased by 99% or $2.0 million. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. In addition, our revenue from premium offerings grew by $8.2 million, or 18%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue.

Our gross profit increased by $7.6 million, or 27%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to an increase in revenue and our transition of acquired Ooyala customers to our technology during 2020. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery.

Income from operations was $6.1 million in the three months ended March 31, 2021 compared to a loss from operations of $7.1 million in the three months ended March 31, 2020. This is primarily due to a decrease in merger-related expenses of $5.5 million and an increase in revenue of $8.2 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Additionally, we recognized a benefit of $1,965 from the CARES Act related to employee retention credits.

Revenue


	Three Months Ended March 31,
	2021					2020					Change
Revenue by Product Line	Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)
Premium	$	54,022		99	%	$	45,787		98	%	$	8,235			18	%
Volume		795		1			866		2			(71	)		(8	)

Total	$	54,817		100	%	$	46,653		100	%	$	8,164			18	%

During the three months ended March 31, 2021, revenue increased by $8.2 million, or 18%, compared to the three months ended March 31, 2020, primarily due to an increase in revenue from our premium offerings. The increase in premium revenue of $8.2 million, or 18%, is primarily the result of increased premium subscription offerings to our customers as the average annual subscription revenue per premium customer increased 14.7% compared to the prior period. In the three months ended March 31, 2021, volume revenue decreased by $71, or 8%, compared to the three months ended March 31, 2020, as we continue to focus on the market for our premium solutions.


	Three Months Ended March 31,
	2021					2020					Change
Revenue by Type	Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount		%
	(in thousands, except percentages)
Subscription and support	$	50,839		93	%	$	44,658		96	%	$	6,181		14	%
Professional services and other		3,978		7			1,995		4			1,983		99

Total	$	54,817		100	%	$	46,653		100	%	$	8,164		18	%

During the three months ended March 31, 2021, subscription and support revenue increased by $6.2 million, or 14%, compared to the three months ended March 31, 2020. The increase was primarily related to an increase in the average annual subscription revenue per premium customer of 14.7% during the three months ended March 31, 2021 compared to the three months ended March 31, 2020. In addition, professional services and other revenue increased by $2.0 million, or 99%, compared to the corresponding quarter in the prior year. 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 March 31,
	2021					2020					Change
Revenue by Geography	Amount		Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)
North America	$	30,386		56	%	$	24,999		54	%	$	5,387			22	%

Europe		8,923		16			8,461		18			462			5
Japan		7,708		14			6,102		13			1,606			26
Asia Pacific		7,659		14			6,870		15			789			11
Other		141		—			221		—			(80	)		(36	)

International subtotal		24,431		44			21,654		46			2,777			13

Total	$	54,817		100	%	$	46,653		100	%	$	8,164			18	%

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.

During the three months ended March 31, 2021, total revenue for North America increased $5.4 million, or 22%, compared to the three months ended March 31, 2020. In the three months ended March 31, 2021, total revenue outside of North America increased $2.8 million, or 13%, compared to the three months ended March 31, 2020. The increase in revenue from international regions is primarily related to increases in revenue in Japan.

Cost of Revenue


	Three Months Ended March 31,
	2021					2020					Change
Cost of Revenue	Amount		Percentage of Related Revenue			Amount		Percentage of Related Revenue			Amount			%
	(in thousands, except percentages)
Subscription and support	$	15,678		31	%	$	16,748		38	%	$	(1,070	)		(6	)%
Professional services and other		3,490		88			1,894		95			1,596			84

Total	$	19,168		35	%	$	18,642		40	%	$	526			3	%

In the three months ended March 31, 2021, cost of subscription and support revenue decreased by $1.1 million, or 6%, compared to the three months ended March 31, 2020. The decrease resulted primarily from incremental costs from the acquisition of Ooyala in the three months ended March 31, 2020 which did not recur in the three months ended March 31, 2021. In the three months ended March 31, 2021, cost of professional services and other revenue increased by $1.6 million, or 84%, compared to the three months ended March 31, 2020. This increase corresponds to an increase in contractor expenses of $1.6 million to support the increase in professional services revenue.

Gross Profit


	Three Months Ended March 31,
	2021					2020					Change
Gross Profit	Amount		Percentage of Related Revenue			Amount		Percentage of Related Revenue			Amount		%
	(in thousands, except percentages)
Subscription and support	$	35,161		69	%	$	27,910		62	%	$	7,251		26	%
Professional services and other		488		12			101		5			387		383	%

Total	$	35,649		65	%	$	28,011		60	%	$	7,638		27	%

The overall gross profit percentage was 65% for the three months ended March 31, 2021 compared to 60% for the three months ended March 31, 2020. Subscription and support gross profit increased $7.3 million, or 26%, compared to the three months ended March 31, 2020. The increase in gross profit dollars for subscription and support revenue was due to incremental costs from the acquisition of Ooyala in the three months ended March 31, 2020 which did not recur in the three months ended March 31, 2021.

Operating Expenses


	Three Months Ended March 31,
	2021						2020					Change
Operating Expenses	Amount			Percentage of Revenue			Amount		Percentage of Revenue			Amount			%
	(in thousands, except percentages)
Research and development	$	8,284			15	%	$	8,853		19	%	$	(569	)		(6	)%
Sales and marketing		16,149			29			14,174		30			1,975			14
General and administrative		7,059			13			6,532		14			527			8
Merger-related		—			—			5,509		12			(5,509	)		(100	)
Other (benefit) expense		(1,965	)		(4	)		—		—			(1,965	)		N/A

Total	$	29,527			54	%	$	35,068		75	%	$	(5,541	)		(16	)%

Research and Development

In the three months ended March 31, 2021, research and development expense decreased by $569, or 6%, compared to the three months ended March 31, 2020 primarily due to a decrease in employee-related expense of $508 and to a lesser extent, various other expenses that, in the aggregate, decreased by approximately $61. We expect our research and development expense as a percentage of revenue to remain relatively unchanged.

Sales and Marketing

In the three months ended March 31, 2021, sales and marketing expense increased by $2.0 million, or 14%, compared to the three months ended March 31, 2020, primarily due to an increase in commissions expense of $1.4 million and an increase in marketing program expenses of $944. These increases were offset by various other expenses that, in aggregate, decreased by approximately $344. We expect that our sales and marketing expense will increase in absolute dollars for the first half of 2021 as compared to the prior period as we will continue to invest in these activities to support revenue growth.

General and Administrative

In the three months ended March 31, 2021, general and administrative expense increased by $527, or 8%, compared to the three months ended March 31, 2020, primarily due to increases in outside professional services of $295 and increases in employee related expenses of $271. These increases were offset by various other expenses that, in aggregate, decreased by approximately $39. In future periods, we expect general and administrative expense to remain relatively unchanged.

Merger-Related

In the three months ended March 31, 2021, merger-related expenses decreased by $5.5 million primarily due to costs incurred in connection with general merger and related activities in 2020 which did not recur in the three months ended March 31, 2021.

Other (benefit) expense

On March 27, 2020, in response to the

COVID-19

pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act, which was amended by the Consolidated Appropriations Act in December of 2020 (the “CARES Act”). The CARES Act provides numerous tax provisions and other stimulus measures, including the creation of certain employee retention credits. In the first quarter of 2021, we recognized a benefit of $1,965 from the CARES Act related to employee retention credits. The benefit was recorded as Other (benefit) expense.

Liquidity and Capital Resources

Cash and cash equivalents.

Our cash and cash equivalents at March 31, 2021 were held for working capital purposes and were invested primarily in cash. We do not enter into investments for trading or speculative purposes. At March 31, 2021 and December 31, 2020, we had $14.0 million and $17.1 million, respectively, of cash and cash equivalents held by subsidiaries in international locations, including subsidiaries located in Japan and the United Kingdom. These earnings can be repatriated to the United

States tax-free but

could still be subject to foreign withholding taxes.


	Three Months Ended March 31,
Condensed Consolidated Statements of Cash Flow Data	2021			2020
	(in thousands)
Cash flows (used in) provided by operating activities	$	(604	)	$	2,441
Cash flows used in investing activities	$	(1,522	)	$	(2,693	)
Cash flows provided by financing activities	$	533		$	10,010

Accounts receivable, net.

Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on the timing of our billing activity, cash collections, and changes to our allowance for doubtful accounts. In many instances we receive cash payment from a customer prior to the time we are able to recognize revenue on a transaction. We record these payments as deferred revenue, which has a positive effect on our accounts receivable balances.

Cash flows provided by operating activities.

Cash provided by operating activities consists primarily of net income adjusted for

certain non-cash items

including depreciation and amortization, stock-based compensation expense, the provision for bad debts and the effect of changes in working capital and other activities. Cash used in operating activities during the three months ended March 31, 2021 was $604. The cash flow used in operating activities primarily resulted from changes in our operating assets and liabilities of $10.3 million, partially offset by net income of $5.1 million and net

non-cash

charges of $4.5 million. Net

non-cash

expenses mainly consisted of $2.2 million for depreciation and amortization and $2.3 million for stock-based compensation. Cash outflows resulting from changes in our operating assets and liabilities consisted primarily of decreases in accrued expenses of $5.8 million, increases in accounts receivable of $1.6 million, increases in prepaid expenses and other current assets of $1.4 million, increases in other assets of $919, decrease in operating leases of $626, and decreases in accounts payable of $425. These changes were offset by decreases in deferred revenue of $482.

Cash flows used in investing activities.

Cash used in investing activities during the three months ended March 31, 2021 was $1.5 million, consisting primarily of $1.1 million for the capitalization of

internal-use

software costs and $468 in capital expenditures to support the business.

Cash flows provided by financing activities.

Cash provided by financing activities for the three months ended March 31, 2021 was $533 , consisting primarily of $1.1 million in proceeds from the exercise of stock options, offset by $475 deferred acquisition payments and $87 in other financing activities

Credit facility.

On December 28, 2020, we entered into an amended and restated loan and security agreement with a lender (the “Loan Agreement”) providing for up to a $30.0 million asset-based line of credit (the “Line of Credit”). Borrowings under the Line of Credit are secured by substantially all of our assets, excluding our intellectual property. We were in compliance with all covenants under the Line of Credit as of March 31, 2021. As we have not drawn on the Line of Credit, there are no amounts outstanding as of March 31, 2021.

Net operating loss carryforwards.

As of December 31, 2020, we had federal and state net operating losses of approximately $161.8 million and $82.4 million, respectively, which are available to offset future taxable income, if any, through 2039. We had federal and state net operating losses of approximately $23.9 million and $1.7 million, respectively, which are available to offset future taxable income, if any, indefinitely. We had federal and state research and development tax credits of $7.8 million and $4.8 million, respectively, which expire in various amounts through 2039. Our net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules of the U.S. Internal Revenue Code of 1986, as amended.

In assessing our ability to utilize our net deferred tax assets, we considered whether it is more likely than not that some portion or all of our net deferred tax assets will not be realized. Based upon the level of our historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, we believe it is more likely than not that we will not realize the benefits of these deductible differences. Accordingly, we have provided a valuation allowance against our U.S. deferred tax assets as of March 31, 2021 and December 31, 2020.

Contractual Obligations and Commitments

Our principal commitments consist primarily of obligations under our leases for our office as well as content delivery network services, hosting and other support services. Other than these lease obligations and contractual commitments, we do not have commercial commitments under lines of credit, standby repurchase obligations or other such debt arrangements.

Our contractual obligations as of December 31, 2020 are summarized in our Annual Report on Form

10-K

for the year ended December 31, 2020.

Recent Accounting Pronouncements

For information on recent accounting pronouncements, see

Recently Issued and Adopted Accounting Standards

in Note 2 to the condensed consolidated financial statements in this Quarterly Report on Form

10-Q.

Off-Balance

Sheet Arrangements

We do not have any special purpose entities or

off-balance

sheet arrangements.

Anticipated Cash Flows

We expect to incur significant operating costs, particularly related to services delivery costs, sales and marketing and research and development, for the foreseeable future in order to execute our business plan. We anticipate that such operating costs, as well as planned capital expenditures will constitute a material use of our cash resources. As a result, our net cash flows will depend heavily on the level of future sales, changes in deferred revenue and our ability to manage infrastructure costs.

We believe our existing cash and cash equivalents and credit facility will be sufficient to meet our working capital and capital expenditures for at least the next 12 months. Our future working capital requirements will depend on many factors, including the rate of our revenue growth, our introduction of new products and enhancements, and our expansion of sales and marketing and product development activities. To the extent that our cash and cash equivalents, and cash flow from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need to raise additional funds in the event we determine in the future to acquire businesses, technologies and products that will complement our existing operations. In the event funding is required, we may not be able to obtain bank credit arrangements or equity or debt financing on terms acceptable to us or at all. Market volatility resulting from the

COVID-19

coronavirus pandemic or other factors could also adversely impact our ability to access capital as and when needed.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (in thousands, except share and per share data, unless otherwise noted)Quantitative and Qualitative Disclosures about Market Risk

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily foreign exchange risks, interest rate and inflation.

Financial instruments

Financial instruments meeting fair value disclosure requirements consist of cash equivalents, accounts receivable and accounts payable. The fair value of these financial instruments approximates their carrying amount.

Foreign currency exchange risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro, British pound, Australian dollar and Japanese yen. Except for revenue transactions in Japan, we enter into transactions directly with substantially all of our foreign customers.

Percentage of revenues and expenses in foreign currency is as follows:


	Three Months Ended March 31,
	2021			2020
Revenues generated in locations outside the United States		48	%		51	%
Revenues in currencies other than the United States dollar (1)		29	%		31	%
Expenses in currencies other than the United States dollar (1)		17	%		16	%

(1)	Percentage of revenues and expenses denominated in foreign currency for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020
	Revenues			Expenses			Revenues			Expenses
Euro		7	%		0	%		8	%		1	%
British pound		6			6			6			6
Japanese Yen		14			3			13			2
Other		2			8			4			7

Total		29	%		17	%		31	%		16	%

As of March 31, 2021 and December 31, 2020, we had $7.9 million and $9.0 million, respectively, of receivables denominated in currencies other than the U.S. dollar. We also maintain cash accounts denominated in currencies other than the local currency, which exposes us to foreign exchange rate movements.

In addition, although our foreign subsidiaries have intercompany accounts that are eliminated upon consolidation, these accounts expose us to foreign currency exchange rate fluctuations. Exchange rate fluctuations on short-term intercompany accounts are recorded in our consolidated statements of operations under “other income (expense), net”, while exchange rate fluctuations on long-term intercompany accounts are recorded as a component of other comprehensive income (loss), as they are considered part of our net investment.

Currently, our largest foreign currency exposures are the euro and British pound primarily because our European operations have a higher proportion of our local currency denominated expenses, in addition to the Japanese Yen as result of our ongoing operations in Japan. Relative to foreign currency exposures existing at March 31, 2021, a 10% unfavorable movement in foreign currency exchange rates would expose us to losses in earnings or cash flows or significantly diminish the fair value of our foreign currency financial instruments. For the three months ended March 31, 2021, we estimated that a 10% unfavorable movement in foreign currency exchange rates would have decreased revenues by $1.6 million, decreased expenses by $820 and decreased operating income by $780. The estimates used assume that all currencies move in the same direction at the same time and the ratio

of non-U.S. dollar

denominated revenue and expenses to U.S. dollar denominated revenue and expenses does not change from current levels. Since a portion of our revenue is deferred revenue that is recorded at different foreign currency exchange rates, the impact to revenue of a change in foreign currency exchange rates is recognized over time, and the impact to expenses is more immediate, as expenses are recognized at the current foreign currency exchange rate in effect at the time the expense is incurred. All of the potential changes noted above are based on sensitivity analyses performed on our financial results as of March 31, 2021.

Interest rate risk

We had cash and cash equivalents totaling $35.2 million at March 31, 2021. Cash and cash equivalents were invested primarily in cash and are held for working capital purposes. We do not use derivative financial instruments in our investment portfolio. Declines in interest rates, however, would reduce future interest income. We did not incur interest expense in the three months ended March 31, 2021. An unfavorable movement of 10% in the interest rate on the Line of Credit would not have had a material effect on interest expense.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of March 31, 2021, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures defined in Rules

13a-15(e)

and

15d-15(e)

under the Exchange Act. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2021, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required

by Rule 13a-15(d) and 15d-15(d) of

the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We, from time to time, are 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 our consolidated financial position, results of operations or cash flows based on the status of proceedings at this time.

ITEM 1A.

RISK FACTORS

You should carefully consider the risks described in our annual report on Form

10-K

for the fiscal year ended December 31, 2020, under the heading “Part I — Item 1A. Risk Factors,” together with all of the other information in this Quarterly Report on Form

10-Q.

Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings. The trading price of our common stock could decline due to any of these risks, and, as a result, you may lose all or part of your investment.

ITEM 5.

OTHER INFORMATION

Our policy governing transactions in our securities by directors, officers and employees permits our officers, directors and certain other persons to enter into trading plans complying with Rule

10b5-1

under the Exchange Act. We have been advised that our Chief Legal Officer, David Plotkin, has entered into a trading plan in accordance with

Rule 10b5-1 and

our policy governing transactions in our securities. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving our company.

We anticipate that, as permitted by Rule

10b5-1

and our policy governing transactions in our securities, some or all of our officers, directors and employees may establish trading plans in the future. We intend to disclose the names of executive officers and directors who establish a trading plan in compliance with Rule

10b5-1

and the requirements of our policy governing transactions in our securities in our future quarterly and annual reports on Form

10-Q

and

10-K

filed with the Securities and Exchange Commission. However, we undertake no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan.

ITEM 6.

EXHIBITS


Exhibits

3.1 (1)		Eleventh Amended and Restated Certificate of Incorporation.

3.2 (2)		Amended and Restated By-Laws.

4.1 (3)		Form of Common Stock certificate of the Registrant.

10.1†		Amendment No. 2 to the 2012 Stock Incentive Plan.

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1^		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

104*		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)

(1)	Filed as Exhibit 3.2 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference.

(2)	Filed as Exhibit 3.3 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference.

(3)	Filed as Exhibit 4.1 to Amendment No. 5 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 6, 2012, and incorporated herein by reference.

^	Furnished herewith.

†	Indicates a management contract or any compensatory plan, contract or arrangement.


	BRIGHTCOVE INC.
	(Registrant)

Date: April 28, 2021	By:
		/s/ Jeff Ray

		Jeff Ray
		Chief Executive Officer
		(Principal Executive Officer)


Date: April 28, 2021	By:
		/s/ Robert Noreck

		Robert Noreck
		Chief Financial Officer
		(Principal Financial Officer)


	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020		4
Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020		5
Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021 and 2020		6
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020		7
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020		8
Notes to Condensed Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3. Quantitative and Qualitative Disclosures About Market Risk		25

Item 4. Controls and Procedures		26

PART II. OTHER INFORMATION		27

Item 1. Legal Proceedings		27

Item 1A. Risk Factors		27

Item 5. Other Information		27

Item 6. Exhibits		28

Signatures		29