Brightcove(BCOV) - 2023 Q4 - Annual Report

Part I Business Brightcove Inc. is a global provider of cloud-based streaming technology and services, primarily through a subscription-based SaaS model, serving 2,559 customers as of December 31, 2023 - Brightcove is a global leader in cloud-based streaming technology, serving 2,559 customers in over 60 countries as of December 31, 2023[10] Annual Revenue Trend | Year | Revenue (in millions) | | :--- | :--- | | 2022 | $211.0 | | 2023 | $201.2 | - The company's business model is primarily subscription-based Software as a Service (SaaS), with Video Cloud™ being the historical source of substantially all revenue[11] - Brightcove's go-to-market strategy focuses on serving existing customers and expanding resources to target higher-end media and enterprise organizations[12][32] - Artificial intelligence (AI) is leveraged in offerings like Engagement Insights, Quality of Experience (QoE) Insights, and Context Aware Encoding (CAE) to enhance viewer engagement and optimize costs[12][13] - As of December 31, 2023, the company had 671 employees, with 370 located outside the United States[42] Risk Factors The company faces numerous risks including a history of net losses, substantial dependence on its single product Video Cloud, macroeconomic conditions, and operational challenges like reliance on key personnel and third-party cloud services - The company has a history of significant losses, reporting a consolidated net loss of $22.9 million for the year ended December 31, 2023, compared to a $9.0 million loss in 2022[47] - A substantial portion of revenue has historically come from a single product, Video Cloud, making the business vulnerable to market shifts or competition[48] - The company's success is dependent on retaining existing customers, as there is no obligation for them to renew annual subscriptions[49] - The business relies on third-party cloud computing services, primarily Amazon Web Services (AWS), and any disruption could significantly harm operations[100][101] - The company undertook restructuring actions, including a workforce reduction of approximately 10% in April 2023, which may not achieve anticipated benefits and could cause operational disruptions[67][69] - The business is subject to evolving government regulations on data privacy and cybersecurity, such as the EU's GDPR and California's CCPA, which could restrict practices or increase compliance costs[109][110] - Chief Financial Officer (CFO), Robert Noreck, announced his intention to step down by May 31, 2024, presenting inherent risks to the business[66] Unresolved Staff Comments The company reports that there are no unresolved staff comments - Not applicable[136] Cybersecurity Brightcove's cybersecurity risk management program, directed by the VP of Business Security, involves internal assessments and monitoring, with Board oversight - The company's process for managing cybersecurity risks includes internal assessments, automated monitoring tools, and reviews of third-party vendor security practices[138] - The Board's audit committee oversees cybersecurity risks, receiving quarterly updates from management and reviewing reports on security initiatives and material incidents[142][143] - The cybersecurity program is directed by the Vice President of Business Security, who has over ten years of experience and reports to the Chief Legal Officer[141] Properties The company's corporate headquarters is in Boston, Massachusetts, under a ten-year lease, with additional global sales, marketing, and R&D offices - Corporate headquarters are located at 281 Summer Street, Boston, MA, under a ten-year lease for approximately 40,000 square feet, which began in June 2022[144] - The company has international offices for sales and marketing in London, Tokyo, Sydney, and Seoul, and for research and development in India, Mexico, and Portugal[145] Legal Proceedings The company is occasionally involved in ordinary course litigation, but management does not expect material adverse effects on its financial position or operations - The company is party to litigation from time to time in the ordinary course of business, but management does not expect these proceedings to have a material adverse effect[146] Mine Safety Disclosures This item is not applicable to the company - Not applicable[147] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Brightcove's common stock trades on NASDAQ under 'BCOV', has never paid dividends, and significantly underperformed market indices over the five years ending December 31, 2023 - The company's common stock trades on the NASDAQ Global Market under the symbol "BCOV"[148] - Brightcove has never paid cash dividends and does not expect to in the foreseeable future, intending to retain cash flow for business growth[149] Stock Performance Comparison (Investment of $100 on 1/2/2019) | Index | 1/2/2019 | 12/31/2023 | | :--- | :--- | :--- | | Brightcove Inc. | $100.0 | $36.7 | | NASDAQ Composite Index | $100.0 | $225.2 | | NASDAQ Computer & Data Processing Index | $100.0 | $330.7 | - There were no repurchases of common stock during the year ended December 31, 2023[152] Reserved This item is not applicable - Not applicable[153] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, Brightcove's revenue decreased by 5% to $201.2 million, net loss widened to $22.9 million, and cash from operations significantly decreased to $4.5 million, leading to restructuring efforts Financial Performance Summary (2022 vs. 2023) | Metric | 2023 (in millions) | 2022 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $201.2 | $211.0 | -4.6% | | Gross Profit | $123.8 | $133.9 | -7.5% | | Loss from Operations | $(21.6) | $(8.0) | +169.4% | | Net Loss | $(22.9) | $(9.0) | +154.3% | Key Business Metrics (at year-end) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Premium Customers | 2,028 | 2,235 | | Total Customers | 2,559 | 2,845 | | Net Revenue Retention Rate | 95% | 95% | | Recurring Dollar Retention Rate | 94% | 89% | | Total Backlog (in millions) | $183.0 | $153.3 | - The company initiated restructuring plans in March and April 2023 (reducing workforce by approximately 10%) and January 2024 to reduce operating costs, incurring $2.8 million in related charges in 2023[162][377][378] Cash Flow Summary (in millions) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Provided by Operating Activities | $4.5 | $25.4 | | Used in Investing Activities | $(15.7) | $(37.8) | | Used in Financing Activities | $(2.0) | $(0.1) | - Cash and cash equivalents decreased to $18.6 million at the end of 2023 from $31.9 million at the end of 2022, primarily due to increased net loss and changes in working capital[207] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rates, with a hypothetical 20% unfavorable exchange rate movement increasing 2023 operating loss by $2.2 million Foreign Currency Exposure as Percentage of Total | Category | 2023 | 2022 | | :--- | :--- | :--- | | Revenues in foreign currency | 25% | 27% | | Expenses in foreign currency | 17% | 16% | - A sensitivity analysis indicates that a 20% unfavorable movement in foreign currency exchange rates would have decreased 2023 revenues by $9.9 million and increased the operating loss by $2.2 million[227] - Interest rate risk exists from cash equivalents held in money market funds and potential interest expense on its line of credit, should it be drawn upon[228] Financial Statements and Supplementary Data The 2023 consolidated financial statements show total assets of $216.1 million, a net loss of $22.9 million, and a significant reduction in cash from operations, with revenue recognition for variable consideration identified as a Critical Audit Matter Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $18,615 | $31,894 | | Total current assets | $70,399 | $77,320 | | Goodwill | $74,859 | $74,859 | | Total assets | $216,107 | $227,813 | | Total current liabilities | $104,629 | $103,957 | | Total liabilities | $122,194 | $125,466 | | Total stockholders' equity | $93,913 | $102,347 | Consolidated Statement of Operations Summary (in thousands) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total revenue | $201,187 | $211,008 | $211,093 | | Gross profit | $123,834 | $133,935 | $138,065 | | (Loss) income from operations | $(21,641) | $(8,032) | $7,574 | | Net (loss) income | $(22,886) | $(9,015) | $5,397 | | Diluted (loss) income per share | $(0.53) | $(0.22) | $0.13 | - The independent auditor's report identified Revenue Recognition for variable consideration related to usage-based fees as a Critical Audit Matter due to subjective management assumptions[232][235][236] - As of December 31, 2023, the company had federal net operating loss carryforwards of approximately $154.0 million, but a full valuation allowance against U.S. deferred tax assets indicates unlikelihood of realization[365][366] - The company capitalized $11.7 million of internal-use software development costs in 2023, down from $15.5 million in 2022[287] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[379] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, a conclusion affirmed by an unqualified auditor's opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[380] - Management assessed internal control over financial reporting based on the 2013 COSO framework and concluded it was effective as of December 31, 2023[382] - The independent auditor, Ernst & Young LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting[383][386] Other Information No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or other non-Rule 10b5-1 trading agreement during the fourth quarter of 2023 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading plan in the fourth quarter of 2023[392] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[392] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 Proxy Statement - This section is incorporated by reference from the company's 2024 Proxy Statement[393] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2024 Annual Meeting of Stockholders Proxy Statement - This section is incorporated by reference from the company's 2024 Proxy Statement[394] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's 2024 Annual Meeting of Stockholders Proxy Statement - This section is incorporated by reference from the company's 2024 Proxy Statement[394] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2024 Proxy Statement - This section is incorporated by reference from the company's 2024 Proxy Statement[395] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 Annual Meeting of Stockholders Proxy Statement - This section is incorporated by reference from the company's 2024 Proxy Statement[396] Part IV Exhibits and Financial Statement Schedules This section lists exhibits filed with the Form 10-K, with financial statements referenced under Item 8 and schedules omitted as information is included elsewhere - This section contains a list of all exhibits filed with or incorporated by reference into the Form 10-K[397] Form 10-K Summary This item is not applicable - Not applicable[407]