Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors.”
Overview
We are a global leader in cloud-based streaming technology and services with a vision to be the world's most trusted streaming technology company. Brightcove’s software platform and suite of solutions include a breadth and depth of offerings that meet the needs of media and enterprise customers in a variety of industries across the globe with their use of streaming video, and serve as a guide in optimizing and maturing their streaming strategies. Leading companies across industries rely on our products, solutions, services, and industry expertise to grow their streaming businesses, monetize their content via streaming use-cases, expand and engage their audiences (both external and internal), and reduce the cost and complexity associated with storing, publishing, delivering, distributing, measuring, and monetizing content across streaming channels and devices.
With deep industry expertise and an understanding of how streaming video helps generate positive business outcomes, our proven platform combines functionality designed to meet the needs and goals of our customers with the additional flexibility for customers to customize solutions to meet their own unique requirements.
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 December 31, 2023, and 2022 we had 671 and 725 employees, respectively.
We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue was $201.2 million in the year ended December 31, 2023 compared to $211.0 million in the year ended December 31, 2022. Though we increased our professional services revenue compared to the prior year, this increase was offset by a decrease in subscription and support revenue. Our consolidated net loss was $22.9 million for the year ended December 31, 2023, compared to $9.0 million for the year ended December 31, 2022. Included in consolidated net loss for the year ended December 31, 2023 was merger-related expenses, stock-based compensation expense and amortization of acquired intangible assets of $0.3 million, $13.9 million and $3.9 million, respectively. Included in consolidated net loss for the year ended December 31, 2022 was merger-related expenses, stock-based compensation expense and amortization of acquired intangible assets of $0.7 million, $13.5 million, and $3.4 million, respectively.
For the years ended December 31, 2023 and 2022, our revenue derived from customers located outside North America was 41% and 44%, respectively. We expect the percentage of revenue derived from outside North America to remain relatively unchanged or decrease in future periods due to fluctuations in exchange rates and a decrease in usage-based fees.
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. A discussion regarding our key metrics for the year ended December 31, 2023 compared to 2022 is presented below. A discussion regarding our key metrics for the year ended December 31, 2022 compared to 2021 can be found under Part II -Item 7 of our Annual Report
on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (SEC) on February 23, 2023.
The following table includes our key metrics for the periods presented:
Year Ended December 31,
Customers (at period end)
Premium
Volume
Total customers (at period end)
Net revenue retention rate
Recurring dollar retention rate
Average annual subscription revenue per premium customer, excluding Starter edition customers (in thousands)
Average annual subscription revenue per premium customer for Starter edition customers only (in thousands)
Total backlog, excluding professional services engagements (in millions)
Total backlog to be recognized over next 12 months, excluding professional services engagements (in millions)
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 volume offerings include our Video Cloud Express customers and our Zencoder customers on month-to-month contracts and pay-as-you-go contracts. All other offerings are considered premium.
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, which we believe was due primarily to customer consolidation through mergers and acquisitions, customer business failures and customers deciding to switch to in-house solutions or other third-party solutions. 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 2023 and beyond as we continue to focus on the market for our premium solutions.
Net Revenue Retention Rate . We assess our ability to retain and expand customers using a metric we refer to as our net revenue retention rate. We calculate the net revenue retention rate by dividing: (a) the current annualized recurring revenue for premium customers that existed twelve months prior by (b) the annualized recurring revenue for all premium customers that existed twelve months prior. We define annualized recurring revenue for premium customers as the aggregate annualized contract value from our premium customer base, measured as of the end of a given period. We typically calculate our net revenue retention rate on a quarterly basis. For annual periods, we report net revenue retention rate as the average of the net revenue retention rate for all fiscal quarters included in the period. By dividing the retained recurring revenue by the base recurring revenue, we measure our success in retaining and growing installed revenue from the specific cohort of customers we served at the beginning of the period. The recurring dollar retention rate focuses on contracts up for renewal in a given quarter, and only captures expansion/upsells at time of renewal, and is more susceptible to swings than the net revenue retention rate. Accordingly, we plan to continue to report the net revenue retention rate in addition to reporting recurring dollar retention rate after this Annual Report on Form 10-K for the year ended December 31, 2023.
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.
Backlog . We define backlog as the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied, excluding professional service engagements. We believe that this metric is important in understanding future business performance.
Restructuring
In March 2023, we took a restructuring action with the intent of aligning skills with the Company’s strategy and facilitating cost efficiencies and savings. As a result, certain headcount reductions were necessary. The Company incurred approximately $0.4 million in restructuring charges during the year ended December 31, 2023 in connection with this action. The restructuring charges reflect post-employment benefits, and the Company does not expect to incur any additional restructuring charges related to this action. The restructuring charges are reflected in the Condensed Consolidated Statements of Operations as follows: $0.2 million - General and Administrative; $0.1 million – Research and Development; and $0.1 million – Sales and Marketing. The Company paid the entire amount by March 31, 2023.
On April 28, 2023, we authorized a restructuring that was designed to reduce operating costs, improve operating margins and focus on key growth and strategic priorities (the "Plan"). The Plan included a reduction of our workforce by approximately 10%. The $2.4 million in restructuring charges recorded in the year ended December 31, 2023 reflect post-employment benefits. The restructuring charges are reflected in the Condensed Consolidated Statements of Operations as follows: $1.2 million in Sales and Marketing; $0.9 million in Research and Development; $0.2 million in General and Administrative and $0.1 million in Cost of Revenue.
In January 2024, we continued to restructure certain parts of our operations with the intent of aligning skills with the Company’s strategy and facilitating cost efficiencies and savings, which also resulted in more limited headcount reductions. We estimate that we will incur between $1.6 million and $1.8 million in restructuring charges in the three months ended March 31, 2024 in connection with this action, which is described in further detail in the notes to the consolidated financial statements.
Geopolitical Events
Worldwide economic uncertainties and negative trends, including financial and credit market fluctuations, uncertainty in the banking sector, rising interest rates, political unrest and social strife, such as continued Russian military action against Ukraine, and the current armed conflict in Israel and the Gaza Strip, a potential U.S. federal government shutdown, and other impacts from the macroeconomic environment have, and could continue to, affect our business, financial condition and results of operations. While we have continued to invest in business growth, our business is dependent on many factors and these macroeconomic conditions have caused and may in the future affect the rate of spending on software products and the demand for video to support virtual events.
See the section titled “Risk Factors” included under Item 1A for further discussion of the possible impact of these geopolitical events on our business.
Components of Consolidated Statements of Operations
Revenue
Subscription and Support Revenue — We generate subscription and support revenue from the sale of our products.
Our products are generally offered to customers on a subscription-based SaaS model, with varying levels of functionality, support, and usage entitlements that depend on the use case of our customers. Customer arrangements are typically one-year contracts, which include a subscription to our software, access to basic support and a pre-determined amount of usage entitlements. The pricing is based on the value of our software, the level of support, and the amount of usage entitlements. 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. We also offer enhanced support packages for an additional fee.
Our Video Cloud Express edition, which targets SMBs, and our Zencoder customers on month-to-month contracts or pay-as-you-go contracts, are considered volume customers. All other 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, expenses 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 2022 to 2023. 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 decreased for the year ended December 31, 2023 compared to the prior year due to restructuring actions taken. 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 expenses 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 Expense (Benefit) . Reflects other operating benefits, costs that do not directly relate to the operating activities listed above.
Other (Expense) Income, net
Other (expense) income 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. and foreign net deferred tax assets and deferred tax assets at December 31, 2023.
Stock-Based Compensation Expense
Our cost of revenue, research and development, sales and marketing, and general and administrative expenses include stock-based compensation expense. Stock-based compensation expense represents the fair value of outstanding stock options and restricted stock awards, which is recognized as expense over the respective stock option and restricted stock award service periods. For the years ended December 31, 2023, 2022 and 2021, we recorded stock-based compensation expense of $13.9 million, $13.5 million, and $10.0 million, respectively. 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. During the year ended December 31, 2023, the U.S. dollar increased in value as compared to the Japanese Yen, and our Japanese Yen-based revenues decreased 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. Should the U.S. dollar continue to increase in value, our future percentage of total net revenue derived from outside North America may remain relatively unchanged or decrease.
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 believe that the following significant accounting policies, which are more fully described in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Revenue Recognition
We primarily derive revenue from the sale of our online video platform, which enables our 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 our technology and related support; (2) hosting, bandwidth and encoding services; and (3) professional services, which include customization services.
Under ASC 606, when the transaction price includes a variable amount of consideration, an entity is required to estimate the consideration that is expected to be received for a particular customer arrangement. We evaluate variable consideration for usage-based fees at contract inception and re-evaluate quarterly over the course of the contract. Specifically, we estimate the revenue pertaining to a customer’s usage that is expected to exceed the contractual entitlement allowance and allocate such revenue to the distinct service within the related contract that gives rise to the variable payment. Estimates of variable consideration include analyzing customer usage against the applicable entitlement limit at the end of each reporting period and estimating the amount and timing of additional amounts to be invoiced in connection with projected usage. Estimates of variable consideration relating to customer usage do not include amounts for which it is probable that a significant reversal will occur. Determining the amount of variable consideration to recognize as revenue involves significant judgment on the part of management and it is possible that actual revenue will deviate from estimates over the course of a customer’s committed contract term.
We periodically enter into multiple-element service arrangements that include platform subscription fees, support fees, and, in certain cases, other professional services. These contracts include multiple promises that we evaluate to determine if the promises are separate performance obligations. Performance obligations are identified based on services to be transferred to a customer that are both capable of being distinct and are distinct within the context of the contract. Once we determine the performance obligations, we determine the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. We then allocate the transaction price to each performance obligation in the contract based on a relative stand-alone selling price method. The transaction price post allocation is recognized as revenue as the related performance obligation is satisfied.
Income Taxes
We are subject to income taxes in both the United States and international jurisdictions, and we use estimates in determining our provision for income taxes. We account for income taxes under the asset and liability method for accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax basis of assets and liabilities using statutory rates. This process requires us to project our current tax liability and estimate our deferred tax assets and liabilities, including net operating losses and tax credit carryforwards. In assessing the need for a valuation allowance, we considered our recent operating results, future taxable income projections and feasible tax planning strategies. We have provided a valuation allowance against substantially all of our net U.S. and foreign deferred tax assets at December 31, 2023. We recognized a deferred tax liability in the U.S. for a portion of our indefinite lived intangibles and other deferred tax liabilities that would not be offset against deferred tax assets. Due to the evolving nature and complexity of tax regulations combined with the number of jurisdictions in which we operate, it is possible that our estimates of our tax liability could change in the future, which may result in additional tax liabilities and adversely affect our results of operations, financial condition and cash flows.
As of December 31, 2023 and 2022, we had no material unrecognized tax benefits.
Business Combinations
We record tangible and intangible assets acquired and liabilities assumed in business combinations under the purchase method of accounting. Amounts paid for each acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. We then allocate the purchase price in excess of net tangible assets acquired to identifiable intangible assets based on detailed valuations that use information and assumptions provided by management. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill.
Significant management judgments and assumptions are required in determining the fair value of acquired assets and liabilities, particularly acquired intangible assets. The valuation of purchased intangible assets is based upon estimates of the future performance and cash flows from the acquired business. Each asset is measured at fair value from the perspective of a market participant. Critical estimates in valuing purchased technology and customer lists include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges which could be material. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to
calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.
If different assumptions are used, it could materially impact the purchase price allocation and adversely affect our results of operations, financial condition and cash flows.
Intangible Assets and Goodwill
Intangible assets that have finite lives are amortized over their estimated useful lives based on the pattern of consumption of the economic benefit or, if that pattern cannot be readily determined, on a straight-line basis and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, as discussed above.
Goodwill is not amortized, but is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Conditions that could trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in certain agreements, significant underperformance relative to historical or projected future operating results, an economic downturn in customers’ industries, increased competition, a significant reduction in our stock price for a sustained period or a reduction of our market capitalization relative to net book value. If there is an impairment, the amount of the impairment is on the excess of a reporting unit’s carrying amount over its fair value.
We have determined, based on our organizational structure, that we have one reporting unit as of December 31, 2023 and 2022. We evaluate impairment by comparing the estimated fair value of our reporting unit to its carrying value. Please see Note 7 for a discussion of the our evaluation of impairment as of December 31, 2023
Results of Operations
The following tables set forth our results of operations for the periods presented.
Year Ended December 31,
(in thousands, except share and per share data)
Revenue:
Subscription and support revenue
Professional services and other revenue
Total revenue
Cost of revenue:
Cost of subscription and support revenue
Cost of professional services and other revenue
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Merger-related
Other expense (benefit)
Total operating expenses
(Loss) income from operations
Other expense, net
(Loss) income before income taxes
Provision (benefit) for income taxes
Net (loss) income
Net (loss) income per share
Basic
Diluted
Weighted-average number of common shares used in computing net (loss) income per share
Basic
Diluted
Overview of Results of Operations for the Years Ended December 31, 2023 and 2022
Total revenue decreased in 2023 compared to 2022 due to a decrease in subscription and support revenue of 6%, or $11.6 million, offset by an increase in professional services and other revenue of 26%, or $1.8 million. The decrease in subscription and support revenue of 6%, or $11.6 million, was primarily related to a decrease in revenue from our premium offerings. The increase in professional services and other revenue of 26%, or $1.8 million, was primarily related to the size and number of professional services engagements in 2023 compared to 2022. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. Our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue.
Our gross profit decreased by $10.1 million, or 8%, in 2023 compared to 2022, primarily due to a decrease in subscription and support revenue, as well as an increase in amortization expense related to our capitalized internal-use software. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery and our revenue from premium offerings.
Loss from operations was $21.6 million in 2023 compared to a loss from operations of $8.0 million in 2022. This is primarily due to an increase in operating expenses of 2%, or $3.5 million, including restructuring expenses of $2.8 million, as well as a decrease in our gross profit of 8%, or $10.1 million.
Revenue
Year Ended December 31,
Change
Revenue by Product Line
Amount
Percentage of
Revenue
Amount
Percentage of
Revenue
Amount
(in thousands, except percentages)
Premium
Volume
Total
During 2023, revenue decreased by $9.8 million, or 5%, compared to 2022, primarily due to a decrease in revenue from our premium offerings. The decrease in premium revenue of $8.9 million, or 4%, is the result of a decrease in the number of our customers and a decrease in usage-based fees outside of North America. During 2023, volume revenue decreased by $952,000, or 43%, compared to 2022. We continue to focus on the market for our premium solutions.
Year Ended December 31,
Change
Revenue by Type
Amount
Percentage of
Revenue
Amount
Percentage of
Revenue
Amount
(in thousands, except percentages)
Subscription and support
Professional services and other
Total
During 2023, subscription and support revenue decreased by $11.6 million, or 6%, compared to 2022. The decrease was due to the aforementioned decrease in revenue from premium offerings outside of North America during the year ended December 31, 2023. Professional services and other revenue increased by $1.8 million, or 26%, compared to 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.
Year Ended December 31,
Change
Revenue by Geography
Amount
Percentage of
Revenue
Amount
Percentage of
Revenue
Amount
(in thousands, except percentages)
North America
Europe
Japan
Asia Pacific
Other
International subtotal
Total
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 2023, total revenue for North America increased by $1.6 million, or 1%, compared to 2022. During 2023, total revenue outside of North America decreased by $11.4 million, or 12%, compared to 2022. The decrease in revenue in Japan was primarily driven by a decrease in average revenue per premium customer as customer usage-based fees were less in the current period and, to a lesser extent, non-recurring customer events that occurred in the prior period. The decreases in Asia Pacific and Europe were due to a decrease in customers and a decrease in average revenue per premium customer as usage-based fees decreased.
Cost of Revenue
Year Ended December 31,
Change
Cost of Revenue
Amount
Percentage of
Related
Revenue
Amount
Percentage of
Related
Revenue
Amount
(in thousands, except percentages)
Subscription and support
Professional services and other
Total
During 2023, cost of subscription and support revenue decreased $1.7 million, or 2%, compared to 2022. This decrease corresponds to a decrease in our network hosting services and content delivery network expenses of $1.2 million, and $5.1 million, respectively, as we continue to optimize our costs of goods sold. These decreases were offset by an increase in amortization of capitalized internal-use software development of $4.6 million.
During 2023, cost of professional services and other revenue increased $2.0 million, or 28%, compared to 2022. This increase corresponds to an increase in contractor expenses of $2.8 million due to higher levels of implementation and professional services provided. This increase was offset by a decrease in employee-related expenses and rent and utilities expenses of $647,000 and $104,000, respectively.
Gross Profit
Year Ended December 31,
Change
Gross Profit
Amount
Percentage of
Related
Revenue
Amount
Percentage of
Related
Revenue
Amount
(in thousands, except percentages)
Subscription and support
Professional services and other
Total
The overall gross profit percentage was 62% and 63% for the years ended December 31, 2023 and 2022, respectively. Subscription and support gross profit decreased $9.9 million, or 7%, compared to 2022. In addition, professional services and other gross profit decreased by $162,000, or 73%, compared to 2022. It is likely that gross profit, as a percentage of revenue, will fluctuate quarter by quarter due to the timing and mix of subscription and support revenue and professional services and other revenue, and the type, timing and duration of service required in delivering certain projects.
Operating Expenses
Year Ended December 31,
Change
Operating Expenses
Amount
Percentage of
Revenue
Amount
Percentage of
Revenue
Amount
(in thousands, except percentages)
Research and development
Sales and marketing
General and administrative
Merger-related
Other
Total
Research and Development . During 2023, research and development expense increased by $3.7 million, or 11%, compared to 2022. This increase was primarily due to increases in employee-related expenses of $4.1 million, which included $1.1 million of restructuring expenses. This increase was offset by a decrease in contractor expenses of $479,000. We expect our research and development expense, as percentage of revenue, to remain relatively unchanged in future periods.
Sales and Marketing . During 2023, sales and marketing expense decreased by $1.6 million, or 2%, compared to 2022 primarily due to decreases in marketing programs expenses, contractor expenses and rent and utilities expenses of $2.7 million, $745,000 and $615,000, respectively. These decreases were offset by an increase in employee-related expenses of $2.2 million, which included $1.3 million of restructuring expenses, and various other expenses that, in aggregate, increased by $274,000. We expect that our sales and marketing expense will decrease in absolute dollars in the short term as a result of the restructuring actions we took in 2023 and January 2024.
General and Administrative . During 2023, general and administrative expense increased by $3.0 million, or 9%, compared to 2022 primarily due to an increase in employee-related expenses of $1.3 million, which included $412,000 of restructuring expenses. The remainder of the increase was due to increases in computer maintenance and support expenses, outside accounting and legal fees, and stock based compensation expense of $799,000, $565,000 and $745,000, respectively. These increases were offset by decreases in recruiting and relocation expenses and insurance expenses of $221,000 and $126,000, respectively, and other various expenses that, in aggregate, decreased by approximately $112,000. In future periods, we expect general and administrative expense, as a percentage of revenue, to remain relatively unchanged.
Merger-Related . During 2023, merger-related expense decreased by $440,000, or 59%, compared to 2022 primarily due to costs incurred in connection with the acquisition of Wicket Labs in 2022 which did not recur in 2023.
Other expense. On March 28, 2022 our CEO retired. Pursuant to a Transition Agreement that was entered into by the previous CEO and the Company in October 2021, the CEO, upon retirement, would be paid his annual base compensation through December 31, 2022 and his 2022 annual bonus, the bonus amount to be determined by the Company’s 2022 performance. In accordance with generally accepted accounting principles we determined that the remaining base compensation and the current estimate of the 2022 annual bonus should be accrued and the expense was recognized as of March 28, 2022. The total expense of $1.1 million reflected $0.2 million of stock-based compensation expense as a result of the modification of certain awards pursuant to the Transition Agreement. Of the total annual base compensation and bonus accrued, the entire balance was paid as of December 31, 2023. During the year ended December 31, 2023, we did not incur additional other expenses.
Overview of Results of Operations for the Years Ended December 31, 2022 and 2021
A discussion regarding an overview of our results of operations for the year ended December 31, 2023 compared to 2022 is presented below. A discussion regarding an overview of our results of operations for the year ended December 31, 2022 compared to 2021 can be found under Part II -Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 23, 2023.
Liquidity and Capital Resources
Cash and cash equivalents.
We had cash and cash equivalents totaling $18.6 million at December 31, 2023 compared to $31.9 million at December 31, 2022. The decrease in cash in 2023 was primarily due to the decrease in net income, which was the result of the decrease in total revenue compared to 2022. Our cash and cash equivalents at December 31, 2023 were held for working capital purposes and were invested primarily in money market funds. We do not enter into investments for trading or speculative purposes. At December 31, 2023 and 2022, we had $8.3 million and $12.1 million, respectively, of cash and cash equivalents held by subsidiaries in international locations, including subsidiaries located in Japan and the United Kingdom. As a result of changes in tax law, these earnings can be repatriated to the United States tax-free but could still be subject to foreign withholding taxes. During the year ended December 31, 2023, we paid $1.7 million of cash consideration held back to sellers for the satisfaction of certain representations and warranties in relation to the acquisition of Wicket Labs. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated working capital and capital expenditure needs over at least the next 12 months.
Year Ended December 31,
Condensed Consolidated Statements of Cash Flow Data
(in thousands)
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows (used in) provided by financing activities
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 provided by operating activities during the year ended December 31, 2023 was $4.5 million. The cash flow provided by operating activities primarily resulted from net non-cash charges of $30.6 million offset by changes in our operating assets and liabilities of $3.2 million and a net loss of $22.9 million. Net non-cash expenses consisted of $13.9 million for stock-based compensation, $16.5 million for depreciation and amortization, and $162,000 for provision for reserves on accounts receivable. Cash inflows from changes in our operating assets and liabilities consisted primarily of a decrease in prepaid expenses and other current assets of $1.6 million, a decrease in other assets of $1.3 million, an increase in accounts payable of $3.3 million, and an increase in deferred revenue of $6.7 million. These inflows were offset by an increase in accounts receivable of $7.7 million, a decrease in accrued expenses of $8.0 million, and operating leases of $409,000. The decrease in cash flow provided by operating activities during the year ended December 31, 2023 compared to the prior period is primarily due to the increase in net loss.
Cash flows used in investing activities.
Cash used in investing activities during the year ended December 31, 2023 was $15.7 million, consisting primarily of $12.5 million for the capitalization of internal-use software costs and $3.1 million in capital expenditures to support the business. The decrease in cash flows used in investing activities is primarily due to the acquisition of Wicket Labs in 2022.
Cash flows used in financing activities.
Cash used in financing activities for the year ended December 31, 2023 was $2.0 million, primarily from deferred acquisition payments and other financing activities.
Credit facility.
On November 1, 2023, we entered into a loan modification agreement to our existing amended and restated loan and security agreement with a lender (the “Loan Agreement”), for the extension of the maturity date of amounts due under the Second Restated Loan Agreement until three years from the date of 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 December 31, 2023. As we have not drawn on the Line of Credit, there are no amounts outstanding as of December 31, 2023.
Net operating loss carryforwards.
As of December 31, 2023, the Company had federal net operating losses of approximately $154.0 million, of which $108.3 million are available to offset future taxable income, if any, through 2037 and $45.7 million which are available to offset future taxable income indefinitely. As of December 31, 2023, the Company had state net operating losses of approximately $76.5 million, of which $73.4 million are available to offset future taxable income, if any, through 2041 and $3.1 million which are available to offset future taxable income indefinitely. The Company also had federal and state research and development tax credits of $10.7 million and $6.3 million, respectively, which expire in various amounts through 2043. The net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules under 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 December 31, 2023 and 2022.
Contractual Obligations and Commitments
Our principal commitments consist primarily of obligations under our leases for our office space and contractual commitments for content delivery network services, hosting and other support services. During 2022 and 2023 we renewed and amended agreements with our primary providers of content delivery network services, hosting and other support services. The terms of the agreements comprised, respectively: 1) a minimum commitment of $93.2 million over three years and 2) a minimum commitment of $6.6 million over two years. As of December 31, 2023, we had operating lease obligations of $21.8 million, with $3.3 million payable within 12 months. As of December 31, 2023, we had outstanding purchase obligations of $55.2 million, with $37.9 payable within 12 months. 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. The following table summarizes these contractual obligations at December 31, 2023:
Payment Due by Period
(in thousands)
Total
Less than 1 Year
More than 1 Year
Operating lease obligations
Outstanding purchase obligations
Total
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 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. We have an existing loan and security agreement with a lender which provides for up to a $30.0 million asset-backed line of credit which expires on November 1, 2026. In the event funding is required, we may not be able to obtain additional bank credit arrangements or equity or debt financing on terms acceptable to us or at all.
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see Recently Issued and Adopted Accounting Standards in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
ITEM 7A. QUANTITA TIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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:
Twelve Months Ended December 31,
Revenues generated in locations outside the United States
Revenues in currencies other than the United States dollar (1)
Expenses in currencies other than the United States dollar (1)
Percentage of revenues and expenses denominated in foreign currency for the years ended December 31, 2023 and 2022:
Twelve Months Ended
December 31, 2023
Revenues
Expenses
Euro
British pound
Japanese Yen
Other
Total
Twelve Months Ended
December 31, 2022
Revenues
Expenses
Euro
British pound
Japanese Yen
Other
Total
As of December 31, 2023 and 2022, we had $6.6 million and $6.9 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 (expense) income, net”, while exchange rate fluctuations on long-term intercompany accounts are recorded as a component of other comprehensive (loss) income, 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 December 31, 2023, a 20% unfavorable movement in foreign currency exchange rates would expose us to significant losses in earnings or cash flows or significantly diminish the fair value of our foreign currency financial instruments. For the year ended December 31, 2023, we estimated that a 20% unfavorable movement in foreign currency exchange rates would have decreased revenues by $9.9 million, decreased expenses by $7.7 million and increased operating losses by $2.2 million. 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 December 31, 2023.
Interest rate risk
We had cash and cash equivalents totaling $18.6 million at December 31, 2023. Cash and cash equivalents were invested primarily in money market funds 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. In the event that we borrow under our line of credit, the related interest expense recorded would be subject to changes in the rate of interest.
Item 8.
Fin ancial Statements and Supplementary Data
Brightcove Inc.
Index to Consolidated Financial Statements
Page No.
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 )
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive (Loss ) Income for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Rep ort of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Brightcove Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Brightcove Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are nerot, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Variable Consideration
Description of the Matter
As described in the footnotes of the consolidated financial statements, specifically, “Summary of Significant Accounting Policies,” the Company’s contracts contain transaction prices with variable amounts of consideration related to usage-based fees. The Company estimates the revenue pertaining to a customer’s usage that is expected to exceed the contractual entitlement allowance, after consideration of any constraints, which is recognized ratably over the service period.
Auditing the Company's measurement of variable consideration is especially challenging and subjective because estimating customers usage involves assessing a large volume of contracts and subjective management assumptions related to estimated future usage. Changes in assumptions of estimated future usage can have a material effect on the amount of revenue recognized in the period.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over the assessment and recording of variable consideration including the Company’s evaluation of potential estimated future usage at the contract level including the impacts of any constraints. We identified and tested controls used for the accumulation of the actual usage to date as well as the assessment of the estimated forecasted usage and related impacts of any constraints.
To test variable consideration, our audit procedures included, amongst others, testing the completeness and accuracy of the underlying data used in the Company’s calculation. This included, for a sample of contracts, agreeing the entitlement allowances to the underlying contracts and agreeing the actual usage to the underlying system of record. To assess management’s variable consideration assumptions, for a sample of contracts, we tested management’s estimated usage over the contractual entitlement allowance by comparing the entitlement and usage rates to actual customer experience, interviewed account managers to understand the actual and expected usage, and evaluated the impacts of any related constraints. We also tested the Company’s historical lookback analysis on a sample basis. Lastly, we performed sensitivity analyses to evaluate how the changes in management’s assumptions of future usage based on historical trends could affect revenue recognized.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010.
Boston, Massachusetts
February 22, 2024
Brightcove Inc.
Consolida ted Balance Sheets
December 31,
(in thousands, except share
and per share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance of $ 210 and $ 294 at December 31, 2023 and December 31, 2022, respectively
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use asset
Intangible assets, net
Goodwill
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued expenses
Operating lease liability
Deferred revenue
Total current liabilities
Operating lease liability, net of current portion
Other liabilities
Total liabilities
Commitments and contingencies (Note 9)
Stockholders’ equity:
Undesignated preferred stock, $ 0.001 par value; 5,000,000 shares authorized; no shares issued
Common stock, $ 0.001 par value; 100,000,000 shares authorized; 43,833,919 and 42,449,677 shares issued at December 31, 2023 and 2022, respectively
Additional paid-in capital
Treasury stock, at cost; 135,000 shares
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
Brightcove Inc.
Consolidated S tatements of Operations
Year Ended December 31,
(in thousands, except per share data)
Revenue:
Subscription and support revenue
Professional services and other revenue
Total revenue
Cost of revenue:
Cost of subscription and support revenue
Cost of professional services and other revenue
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Merger-related
Other expense (benefit)
Total operating expenses
(Loss) income from operations
Other (expense) income, net
Interest income
Interest expense
Other expense, net
Total other (expense) income, net
(Loss) income before income taxes
Provision (benefit) for income taxes
Net (loss) income
Net (loss) income per share
Basic
Diluted
Weighted-average number of common shares used in computing net (loss) income per share
Basic
Diluted
See accompanying notes.
Brightcove Inc.
Consolidated State ments of Comprehensive (Loss) Income
Year Ended December 31,
(in thousands)
Net (loss) income
Other comprehensive (loss) income:
Foreign currency translation adjustments
Comprehensive (loss) income
See accompanying notes.
Brightcove Inc.
Conso lidated Statements of Stockholders’ Equity
(in thousands, except share data)
Year Ended December 31,
(in thousands, except share data)
Shares of common stock issued
Balance, beginning of period
Common stock issued upon acquisition
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units
Balance, end of period
Shares of treasury stock
Balance, beginning of period
Balance, end of period
Par value of common stock issued
Balance, beginning of period
Common stock issued upon acquisition
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units
Balance, end of period
Value of treasury stock
Balance, beginning of period
Balance, end of period
Additional paid-in capital
Balance, beginning of period
Issuance of common stock upon exercise of stock options and pursuant to restricted stock units, net of tax
Stock-based compensation expense
Withholding tax on restricted stock
Common stock issued upon acquisition
Balance, end of period
Accumulated deficit
Balance, beginning of period
Net (loss) income
Balance, end of period
Accumulated other comprehensive loss
Balance, beginning of period
Foreign currency translation adjustment
Balance, end of period
Total stockholders’ equity
See accompanying notes.
Brightcove Inc.
Consolidated S tatements of Cash Flows
Year Ended December 31,
(in thousands)
Operating activities
Net (loss) income
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Provision for reserves on accounts receivable
Changes in assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses
Operating leases
Deferred revenue
Net cash provided by operating activities
Investing activities
Cash paid for acquisition, net of cash acquired
Purchases of property and equipment
Capitalized internal-use software costs
Net cash used in investing activities
Financing activities
Proceeds from exercise of stock options
Deferred acquisitions payments
Other financing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information
Cash paid for operating lease liabilities
Cash paid for income taxes
Cash paid for interest
Supplemental disclosure of non-cash operating activities
Capitalization of stock-based compensation related to internal use software
Supplemental disclosure of non-cash investing and financing activities
Unpaid internal-use software costs
Fair value of shares issued for acquisition of a business
Unpaid purchases of property and equipment
See accompanying notes.
Brightcove Inc.
Notes to Consolid ated Financial Statements
Years Ended December 31, 2023, 2022 and 2021
(in thousands, except share and per share data, unless otherwise noted)
Business Description
Brightcove Inc. (the Company) is a 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.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the consolidated financial statements.
The Company believes that a significant accounting policy is one that is both important to the portrayal of the Company’s financial condition and results, and requires management’s most difficult, subjective, or complex judgments, often as the result of the need to make estimates about the effect of matters that are inherently uncertain.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).
Use of Estimates and Uncertainties
The preparation of financial statements in conformity with GAAP requires management 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 expensed during the reporting period.
Significant estimates relied upon in preparing these consolidated financial statements include revenue recognition and variable consideration, contingent liabilities, intangible asset valuations, and the realizability of the Company’s deferred tax assets.
Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made.
The Company is subject to a number of risks and uncertainties common to companies in similar industries and stages of development including, but not limited to, rapid technological changes, competition from substitute products and services from larger companies, customers switching to in-house solutions, customer concentration, management of international activities, protection of proprietary rights, patent litigation, and dependence on key individuals.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Foreign Currency Translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company’s foreign subsidiaries is the local currency of each subsidiary. All assets and liabilities in the balance sheets of entities whose functional currency is a
currency other than the U.S. dollar are translated into U.S. dollar equivalents at exchange rates as follows: (1) asset and liability accounts at period-end rates, (2) income statement accounts at weighted-average exchange rates for the period, and (3) stockholders’ equity accounts at historical exchange rates. The resulting translation adjustments are excluded from income (loss) and reflected as a separate component of stockholders’ equity. Foreign currency transaction gains and losses are included in net loss for the period. The Company may periodically have certain intercompany foreign currency transactions that are deemed to be of a long-term investment nature; exchange adjustments related to those transactions are made directly to other comprehensive loss, a separate component of stockholders’ equity.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Management determines the appropriate classification of investments at the time of purchase, and re-evaluates such determination at each balance sheet date. The Company did no t have any short-term or long-term investments at December 31, 2023 or 2022. Cash and cash equivalents primarily consist of cash on deposit with banks and amounts held in interest-bearing money market accounts. Cash equivalents are carried at cost, which approximates their fair market value.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Upon retirement or sale, the cost of assets disposed of, and the related accumulated depreciation, are removed from the accounts, and any resulting gain or loss is included in the determination of net income or loss in the period of retirement. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major improvements are capitalized as additions to property and equipment.
The Company estimates the useful life of property and equipment as follows:
Estimated Useful Life
(in Years)
Computer equipment
Software
Furniture and fixtures
Leasehold improvements
Shorter of lease term or the estimated useful life
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures , establishes a three-level valuation hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.
ASC 820 identifies fair value as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
Level 1: Observable inputs, such as quoted prices for identical assets or liabilities in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly, such as quoted prices for similar assets or liabilities, or market-corroborated inputs; and
Level 3: Unobservable inputs for which there is little or no market data which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities.
The valuation techniques that may be used to measure fair value are as follows:
A. Market approach — Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
B. Income approach — Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models, and excess earnings method.
C. Cost approach — Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
The Company measures eligible assets and liabilities at fair value, with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to remeasure any of its existing financial assets or liabilities, and did not elect the fair value option for any financial assets and liabilities transacted in the years ended December 31, 2023 or 2022. Realized gains and losses from sales of the Company’s investments are included in “Other (expense) income, net”.
The carrying amounts of the Company’s financial instruments, which include cash, cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximated their fair values at December 31, 2023 and 2022, due to the short-term nature of these instruments.
The Company has evaluated the estimated fair value of financial instruments using available market information and management’s estimates. The use of different market assumptions and/or estimation methodologies could have a significant impact on the estimated fair value amounts.
The Company’s financial instruments carried at fair value were less than $ 0.1 million as of December 31, 2023 and 2022 .
Revenue
ASC 606 outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
1) Identify the contract with a customer
2) Identify the performance obligations in the contract
3) Determine the transaction price
4) Allocate the transaction price to performance obligations in the contract
5) Recognize revenue when or as the Company satisfies a performance obligation
The Company satisfies performance obligations as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer. The transaction price is the total amount of consideration to which the Company expects to be entitled in exchange for transferring the promised services to the customer. The Company has elected to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer (e.g. sales and use tax).
Disaggregation of Revenue
Subscription and Support
The Company’s subscription arrangements provide customers the right to access its hosted software applications. Customers do not have the right to take possession of the Company’s software during the hosting arrangement. Contracts for premium customers generally have a term of one year and are non-cancellable. These contracts generally provide the customer with a maximum contractual level of entitlement, and provide the rate at which the customer pays for actual usage above the contractual entitlement allowance. These subscription arrangements are considered stand ready obligations that are providing a series of distinct services that are substantially the same and are transferred with the same pattern to the customer. As such, these
subscription arrangements are treated as a single performance obligation and the related fees are recognized as revenue ratably over the term of the underlying arrangement.
When the transaction price includes a variable amount of consideration, an entity is required to estimate the consideration that is expected to be received for a particular customer arrangement. The Company evaluates variable consideration for usage-based fees at contract inception and re-evaluates quarterly over the course of the contract. Specifically, the Company estimates the revenue pertaining to a customer’s usage that is expected to exceed the contractual entitlement allowance and allocates such revenue to the distinct service within the related contract that gives rise to the variable payment. Estimates of variable consideration include analyzing customer usage against the applicable entitlement limit at the end of each reporting period and estimating the amount and timing of additional amounts to be invoiced in connection with projected usage. Estimates of variable consideration relating to customer usage do not include amounts for which it is probable that a significant reversal will occur. Determining the amount of variable consideration to recognize as revenue involves significant judgment on the part of management and it is possible that actual revenue will deviate from estimates over the course of a customer’s committed contract term.
Contracts with customers that are month-to-month arrangements (volume customers) have a maximum monthly level of usage and provide the rate at which the customer must pay for actual usage above the monthly allowable usage. The monthly volume subscription and support and usage fees are recognized as revenue during the related period of performance. Contracts with customers that are invoiced on a pay-as-you-go basis, where there is no monthly or annual commitment for usage, provide the rate at which the customer must pay for actual usage for a particular period. Fees that are invoiced on a pay-as-you-go basis are recognized as revenue during the period of performance.
Professional Services and Other Revenue
Professional services and other revenue consist 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. Professional services and other revenue is recognized on a percent complete basis based on the input method. Professional services and other revenue sold on a stand-alone basis are recognized as the services are performed, subject to any refund or other obligation.
Contracts with Multiple Performance Obligations
The Company periodically enters into multiple-element service arrangements that include platform subscription fees, support fees, and, in certain cases, other professional services. These contracts include multiple promises that the Company evaluates to determine if the promises are separate performance obligations. Performance obligations are identified based on services to be transferred to a customer that are both capable of being distinct and are distinct within the context of the contract. Once the Company determines the performance obligations, the Company determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on a relative stand-alone selling price method. The transaction price post allocation is recognized as revenue as the related performance obligation is satisfied.
Costs to Obtain a Contract
Commissions are paid to internal sales representatives as compensation for obtaining contracts. Under ASC 606, Revenue from Contracts with Customers , the Company capitalizes commissions that are incremental, as a result of costs incurred to obtain a customer contract, if those costs are not within the scope of another topic within the accounting literature and meet the specified criteria. Assets recognized for costs to obtain a contract are amortized over the period of performance for the underlying customer contracts. The commission expense on contracts with new customers is recorded over the average life of a customer given the commission amount associated with sales to new customers is not commensurate with the commission amount associated with the contract renewal for those same customers. The commission amount associated with the renewal of a contract in addition to any commission amount related to incremental sales are recorded as expense over the term of the renewed contract. These assets are periodically assessed for impairment.
Cost of Revenue
Cost of revenue primarily consists of costs related to supporting and hosting the Company’s product offerings and delivering professional services. These costs include salaries, benefits, incentive compensation and stock-based compensation expense related to the management of the Company’s data centers, customer support team and the Company’s professional
services staff, in addition to third-party service provider costs such as data center and networking expenses, allocated overhead, amortization of capitalized internal-use software development costs and intangible assets and depreciation expense.
Allowance for Doubtful Accounts
The Company offsets gross trade accounts receivable with an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable and is based upon historical loss patterns, the number of days that billings are past due, and an evaluation of the potential risk of loss associated with specific accounts. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions for allowances for doubtful accounts are recorded in general and administrative expense.
Effective January 1, 2020, the Company adopted ASC 326, which requires measurement and recognition of expected credit losses for financial assets held. Estimating credit losses based on risk characteristics requires significant judgment by the Company. Significant judgments include, but are not limited to: assessing current economic conditions and the extent to which they would be relevant to the existing characteristics of the Company’s financial assets, the estimated life of financial assets, and the level of reliance on historical experience in light of economic conditions. The Company reviews and updates, when necessary, its historical risk characteristics that are meaningful to estimating credit losses, any new risk characteristics that arise in the natural course of business, and the estimated life of its financial assets.
The Company uses the aging method to estimate its expected credit losses on trade accounts receivable (“AR”) and unbilled trade accounts receivable (“UAR”). As of December 31, 2023, the financial assets of the Company within the scope of the assessment comprised AR and UAR. UAR is reflected in Other current assets on the Company’s Consolidated Balance Sheets and was $ 1.8 million and $ 1.8 million as of December 31, 2023 and December 31, 2022, respectively. Estimated credit losses for UAR were not material.
The information obtained from assessing historical experience, current economic conditions and reasonable and supportable forecasts were used to identify risk characteristics that can affect future credit loss experience. The historical analysis yielded one material risk factor, the geographical location of the customer. Specifically, historical experience showed that AR that was due from customers in the Asia Pacific region had experienced more credit losses than the other geographic areas listed in Note 15. Europe and Japan had significantly less credit loss experience when compared to Asia Pacific while North America’s credit loss experience was commensurate with the proportion of total AR that North America’s AR comprised. There were no other significant risk characteristics identified in the review of historical experience.
Below is a summary of the changes in the Company’s allowance for doubtful accounts for the years ended December 31, 2023, 2022 and 2021:
Balance at Beginning of Period
Provision
Write-offs
Balance at End of Period
Year ended December 31, 2023
Year ended December 31, 2022
Year ended December 31, 2021
Off-Balance Sheet Risk and Concentration of Credit Risk
The Company has no significant off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and trade accounts receivable. The Company maintains its cash and cash equivalents principally with accredited financial institutions of high credit standing. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits. The Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.
For the years ended December 31, 2023, 2022 and 2021, no individual customer accounted for more than 10 % of total revenue. As of December 31, 2023 and 2022 , no individual customer accounted for more than 10% of accounts receivable, net.
Concentration of Other Risks
The Company is dependent on certain content delivery network providers who provide digital media delivery functionality enabling the Company’s on-demand application service to function as intended for the Company’s customers and ultimate end-users. The disruption of these services could have a material adverse effect on the Company’s business, financial position, and results of operations.
Software Development Costs
Costs incurred to develop software applications used in the Company’s on-demand application services consist of (a) certain external direct costs of materials and services incurred in developing or obtaining internal-use computer software, and (b) payroll and payroll-related costs for employees who are directly associated with, and who devote time to, the project. These costs generally consist of internal labor during configuration, coding, and testing activities. Research and development costs incurred during the preliminary project stage or costs incurred for data conversion activities, training, maintenance and general and administrative or overhead costs are expensed as incurred. Capitalization begins when the preliminary project stage is complete, management, with the relevant authority, authorizes and commits to the funding of the software project, it is probable the project will be completed, the software will be used to perform the functions intended and certain functional and quality standards have been met. Qualified costs incurred during the operating stage of the Company’s software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality, while costs that cannot be separated between maintenance of, and minor upgrades and enhancements to, internal-use software are expensed as incurred. These capitalized costs are amortized on a straight-line basis over the expected useful life of the software, which is estimated to be three years . Capitalized internal-use software development costs are classified as “Software” within “Property and Equipment, net” in the accompanying consolidated balance sheets.
During the years ended December 31, 2023, 2022 and 2021, the Company capitalized $ 11.7 million, $ 15.5 million, and $ 7.7 million, respectively, of internal-use software development costs. The Company recorded amortization expense associated with its capitalized internal-use software development costs of $ 9.9 million, $ 5.2 million and $ 3.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Leases
Under ASC 842, a right-of-use asset and lease liability is recorded for all leases and the statement of operations reflects the lease expense for operating leases and amortization/interest expense for financing leases. The Company does not apply the recognition requirements in the standard to a lease that at commencement date has a lease term of twelve months or less and does not contain a purchase option that it is reasonably certain to exercise and to not separate lease and related non-lease components.
The Company leases its facilities under non-cancelable operating leases. Right-of-use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Many of the Company’s lessee agreements include options to extend the lease, which are not included in the minimum lease terms unless they are reasonably certain to be exercised.
Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During this review, the Company re-evaluates the significant assumptions used in determining the original cost and estimated lives of long-lived assets. Although the assumptions may vary from asset to asset, they generally include operating results, changes in the use of the asset, cash flows, and other indicators of value. Management then determines whether the remaining useful life continues to be appropriate, or whether there has been an impairment of long-lived assets based primarily upon whether expected future undiscounted cash flows are sufficient to support the assets’ recovery. If impairment exists, the Company adjusts the carrying value of the asset to fair value, generally determined by a discounted cash flow analysis.
For the years ended December 31, 2023, 2022 and 2021, the Company has not identified any impairment of its long-lived assets.
Business Combinations
The Company records tangible and intangible assets acquired and liabilities assumed in business combinations under the purchase method of accounting. Amounts paid for each acquisition are allocated to the assets acquired and liabilities assumed
based on their fair values at the date of acquisition. The Company then allocates the purchase price in excess of net tangible assets acquired to identifiable intangible assets based on detailed valuations that use information and assumptions provided by management. Any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed is allocated to goodwill. If the fair value of the assets acquired exceeds the purchase price, the excess is recognized as a gain.
Significant management judgments and assumptions are required in determining the fair value of acquired assets and liabilities, particularly acquired intangible assets. The valuation of purchased intangible assets is based upon estimates of the future performance and cash flows from the acquired business. Each asset is measured at fair value from the perspective of a market participant.
If different assumptions are used, it could materially impact the purchase price allocation and adversely affect our results of operations, financial condition and cash flows.
For further discussion of the Company’s accounting policies related to business comb inations, see Note 3.
Intangible Assets and Goodwill
Intangible assets that have finite lives are amortized over their estimated useful lives based on the pattern of consumption of the economic benefit or, if that pattern cannot be readily determined, on a straight-line basis and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, as discussed above.
Goodwill is not amortized, but is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Conditions that could trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in certain agreements, significant underperformance relative to historical or projected future operating results, an economic downturn in customers’ industries, increased competition, a significant reduction in our stock price for a sustained period or a reduction of our market capitalization relative to net book value. If there is an impairment, the amount of the impairment is on the excess of a reporting unit’s carrying amount over its fair value.
The Company has determined, based on its organizational structure, that it had one reporting unit as of December 31, 2023 and 2022 . The Company evaluates impairment by comparing the estimated fair value of its reporting unit to its carrying value. Please see Note 7 for a discussion of the Company's evaluation of impairment as of December 31, 2023
Comprehensive (Loss) Income
Comprehensive (loss) income is defined as the change in equity of a business enterprise during a period from transactions, other events, and circumstances from non-owner sources. Accumulated other comprehensive loss is presented separately on the consolidated balance sheets and consists entirely of cumulative foreign translation adjustments as of December 31, 2023 and 2022 .
Net (Loss) Income per Share
The Company calculates basic and diluted (loss) earnings per common share by dividing the (loss) earnings amount by the number of common shares outstanding during the period. The calculation of diluted earnings per common share includes the
effects of the assumed exercise of any outstanding stock options and the assumed vesting of shares of restricted stock awards, where dilutive.
The following table set forth the computations of basic and diluted (loss) earnings per share:
Year Ended December 31,
(in thousands, except per share data)
Net (loss) income
Weighted average shares used in computing basic earnings per share
Effect of weighted average dilutive stock-based awards
Weighted average shares used in computing diluted earnings per share
Net (loss) income per share—basic and diluted
Basic
Diluted
The following outstanding common shares have been excluded from the computation of dilutive (loss) earnings per share as of the periods indicated because such securities are anti-dilutive:
Year Ended December 31,
Options outstanding
Restricted stock units outstanding
Total options and restricted stock units outstanding
Income Taxes
The Company accounts 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.
The Company accounts for uncertain tax positions recognized in the consolidated financial statements by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Interest and penalties, if applicable, related to uncertain tax positions would be recognized as a component of income tax expense. The Company has no recorded liabilities for uncertain tax positions as of December 31, 2023 or 2022 .
Stock-Based Compensation
At December 31, 2023 , the Company had seven stock-based compensation plans, which are more fully descri bed in Note 11.
The Company values its shares of common stock in connection with the issuance of stock-based equity awards using the closing price of the Company’s shares of common stock on the NASDAQ Global Market on the date of the grant. Accounting guidance requires stock-based payments to be accounted for under the fair value method. Under this method, the Company is required to record compensation cost based on the estimated fair value for stock-based awards granted over the requisite service periods for the individual awards, which generally equals the vesting periods.
For stock options issued under the Company’s stock-based compensation plans, the fair value of each option grant is estimated on the date of grant. For service-based options, the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award.
The fair value of each service-based option grant issued under the Company’s stock-based compensation plans was estimated using the Black-Scholes option-pricing model. The expected volatility of options granted has been determined using the historical volatility of the Company’s own common stock. The expected life of options has been determined utilizing the
“simplified method”. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid, and does not anticipate paying, cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero.
For premium-priced options issued under the Company's stock-based compensation plans, the fair value of each option issued is determined using the binomial lattice model, which calculates multiple potential outcomes for option exercises and establishes a fair value based on the most likely outcome. Key assumptions for the binomial lattice model include share price, volatility, the early exercise multiple, risk-free rate, expected dividends, and number of time steps.
For restricted stock units issued under the Company’s stock-based compensation plans, the fair value of each grant is calculated based on the Company’s stock price on the date of grant. For performance-based awards with service-based vesting conditions, the Company recognizes compensation expense based upon a review of the Company’s expected achievement against the specified targets. For performance-based awards with market-based vesting, the Company recognizes compensation expense as the requisite service is rendered by the employee, regardless of when, if ever, the market-based performance conditions are satisfied. The Monte-Carlo simulation model is used to estimate fair value of market-based performance restricted stock units. The Monte-Carlo simulation model calculates multiple potential outcomes for an award and establishes a fair value based on the most likely outcome. Key assumptions for the Monte-Carlo simulation model include the risk-free rate, expected volatility, expected dividends and the correlation coefficient.
Forfeitures are recognized as they occur.
Advertising Costs
Advertising costs are charged to operations as incurred. The Company incurred advertising costs of $ 2.7 million, $ 4.8 million and $ 6.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Merger-related Costs
Merger-related costs consist of expenses related to mergers and acquisitions, integration costs and general corporate development activities. In 2022, merger-related costs incurred were primarily related to the acquisition of Wicket Labs and, to a lesser extent, general merger and related activities. In 2023 and 2021, merger-related costs incurred were primarily related to general merger and related activities.
Recent Accounting Pronouncements and Standards
Recently Adopted Accounting Pronouncements
ASU No. 2023-09
In December 2023, the FASB issued ASU No. 2023-09, which improves the transparency and decision usefulness of income tax disclosures, specifically to enhance investors's ability to: (1) understand an entity’s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities, (2) assess income tax information that affects cash flow forecasts and capital allocation decisions, and (3) identify potential opportunities to increase future cash flows. This guidance will be effective for the Company on January 1, 2025. The Company does not expect application of this guidance to have a material impact on its consolidated financial statements.
3. Business Combinations
On February 1, 2022, the Company acquired 100 % of the outstanding shares of Wicket Labs, Inc. (“Wicket Labs”) a provider of subscriber and content insights, in exchange for common stock of the Company and cash, (“Wicket Acquisition”). At the closing, the Company issued 212,507 unregistered shares of common stock of the Company valued at approximately $ 2.0 million and approximately $ 15.0 million in cash, of which approximately $ 1.8 million of the cash consideration was held back to secure payment of any claims of indemnification for breaches or inaccuracies in the sellers’ representations and warranties, covenants and agreements. During the year ended December 31, 2022, the Company paid $ 0.1 million of cash consideration held back to the sellers for the satisfaction of certain representations and warranties. The remaining cash consideration held back was included in Accrued Expenses at December 31, 2022 and released in full on February 8, 2023.
The Wicket Acquisition was accounted for using the purchase method of accounting in accordance with Accounting Standards Codification 805 — Business Combinations. Accordingly, the results of operations of the acquired company have been included in the accompanying condensed consolidated financial statements since the date of acquisition. The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the Wicket Acquisition, and using assumptions that the Company’s management believes are reasonable given the information currently available. The Company completed its valuation of its intangible assets, accounts receivable, deferred revenue and the valuation of the acquired deferred tax assets and liabilities during the year ended December 31, 2022. The final allocations of the purchase price to intangible assets, accounts receivable, deferred revenue, goodwill and any deferred tax assets and liabilities are included in these consolidated financial statements.
During the year ended December 31, 2022, the Company incurred $ 0.7 million of merger-related costs related to the Wicket Acquisition.
The excess of the purchase price over the estimated amounts of net assets as of the effective date of the acquisition was allocated to goodwill in accordance with the accounting guidance. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Wicket Acquisition. These benefits include the acquired workforce and opportunities to expand the Company’s offerings in target market segments that use subscriber and content insights to make decisions. The goodwill is non-deductible for tax purposes.
The total purchase price for the Wicket Acquisition has been allocated as follows:
Cash
Accounts receivable and other assets
Identifiable intangible assets
Goodwill
Deferred revenue
Deferred tax liabilities
Other liabilities
Total estimated purchase price
The following are the identifiable intangible assets acquired and their respective useful lives, as determined based on valuations:
Amount
Useful Life
(in years)
Developed technology
Customer relationships
Total
The fair value of the intangible assets has been estimated using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital.
Pro forma results of operations for the Wicket Acquisition have not been presented because the effect of the acquisition is not material to the Company's consolidated financial results. Revenue and earnings attributable to acquired operations since the date of the acquisition are included in the Company's consolidated statements of operations.
4. Cash and Cash Equivalents
Cash and cash equivalents as of December 31, 2023 and 2022 consist of the following:
December 31, 2023
Description
Contracted
Maturity
Amortized Cost
Fair Market
Value
Cash
Demand
Money market funds
Demand
Total cash and cash equivalents
December 31, 2022
Description
Contracted
Maturity
Amortized Cost
Fair Market
Value
Cash
Demand
Money market funds
Demand
Total cash and cash equivalents
5. Property and Equipment
Property and equipment consist of the following:
December 31,
Computer equipment
Software
Furniture and fixtures
Leasehold improvements
Less accumulated depreciation and amortization
Depreciation and amortization expense, which includes amortization expense associated with capitalized internal-use software development costs, for the years ended December 31, 2023, 2022 and 2021 was $ 12.6 million, $ 7.3 million and $ 5.3 million , respectively.
6. 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, 2023
Balance at December 31, 2022
Balance at December 31, 2021
Balance at December 31, 2020
Revenue recognized during the year ended December 31, 2023 from amounts included in deferred revenue at the beginning of the period was approximately $ 61.0 million. During the year ended December 31, 2023, the Company did not recognize any material revenue from performance obligations satisfied or partially satisfied in previous periods.
The assets recognized for costs to obtain a contract were $ 13.1 million and $ 12.4 million as of December 31, 2023 and December 31, 2022, respectively. Amortization expense recognized for costs to obtain a contract was $ 10.9 million, $ 10.4 million and $ 12.7 million during the years ended December 31, 2023, 2022 and 2021, respectively.
Transaction Price Allocated to Future Performance Obligations
As of December 31, 2023, the total aggregate transaction price allocated to the unsatisfied performance obligations for subscription and support contracts was approximately $ 183.0 million, of which approximately $ 127.3 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 2028 .
7. Intangible Assets and Goodwill
Finite-lived intangible assets consist of the following as of December 31, 2023:
Description
Weighted Average Estimated Useful Life (in years)
Gross Carrying Value
Accumulated Amortization
Net Carrying Value
Developed technology
Customer relationships
Non-compete agreements
Tradename
Total
Finite-lived intangible assets consist of the following as of December 31, 2022:
Description
Weighted Average Estimated Useful Life (in years)
Gross Carrying Value
Accumulated Amortization
Net Carrying Value
Developed technology
Customer relationships
Non-compete agreements
Tradename
Total
In the fourth quarter of 2022 the Company assessed the useful life of the acquired Wicket-developed technology and changed its estimate of the expected useful life to 3 years . This change was applied prospectively as of the beginning of the fourth quarter 2022.
The following table summarizes amortization expense related to intangible assets for the years ended December 31, 2023, 2022 and 2021:
Year Ended December 31,
Cost of subscription and support revenue
Sales and marketing
The estimated remaining amortization expense for each of the five succeeding years and thereafter is as follows:
Year Ending December 31,
Amount
2029 and thereafter
Total
Goodwill was $ 74,859 at December 31, 2023 and 2022. There were no changes in the carrying amount of goodwill for the year ended December 31, 2023.
The Company views its operations and manages its business as one reporting unit and tests goodwill and its definite-lived intangible assets annually on October 31. As of October 31, 2023, the Company did not identify an impairment triggering event and assessed impairment for goodwill and other definite-lived intangible assets using a qualitative approach and quantitative approach, respectively.
During the two months ended December 31, 2023 the Company identified a triggering event, the decrease in its stock price as of December 31, 2023 (the interim testing date), that may indicate impairment.
The Company reviewed its quantitative analysis for its definite-lived intangible assets as of October 31, 2023, that used undiscounted cash flow models, and determined that the assumptions used in the undiscounted cash flow model were still applicable as of December 31, 2023 and that there was no impairment on our definite-lived intangible assets. The Company's significant assumptions in the undiscounted cash flow models include, but are not limited to, its revenue growth rates assumption.
As the Company has one reporting unit all of its goodwill was allocated to that unit for the purpose of testing for impairment. To determine fair value of its one reporting unit, the Company engaged a third-party valuation expert and provided the valuation expert with projected financial information prepared by management. The Company took the income approach and used a discounted cash flow model as its valuation technique to measure the fair value of its reporting unit. The discounted cash flow model used forecasted cash flows plus a terminal value based on capitalizing the last period's cash flows using a perpetual growth rate. The Company's significant assumptions in the discounted cash flow model include, but are not limited to: the weighted average cost of capital ("WACC", the rate at which future cash flows are discounted to present value), revenue growth rates, including the perpetual growth rate for the terminal year, and operating margins of the reporting unit. Lastly, the Company reconciled the aggregate of the discounted cash flows to its market capitalization, which included a reasonable control premium based on observed market conditions. The result of the goodwill impairment test performed indicated that estimated fair value exceeded the carrying value of the reporting unit. As such, the Company feels the reporting unit was not at risk of impairment as of the interim testing date.
Conditions that could trigger future impairment assessment include, but are not limited to, a significant adverse change in certain agreements, significant underperformance relative to historical or projected future operating results, an economic downturn in customers’ industries, increased competition, a significant reduction in our stock price for a sustained period or a reduction of our market capitalization relative to net book value. These factors could have a negative material impact to the fair value of the Company's reporting unit and could result in a future impairment charge.
8. Leases
The Company’s corporate headquarters are located in Boston, Massachusetts, pursuant to a lease of approximately 40,000 square feet that terminates on September 30, 2032 . The initial term of the lease is for ten years . The Company has the option to extend the lease for two successive five-year terms which were not recognized in the initial liability and right-of-use asset, as the Company does not expect to exercise the extension. The Company has a right of first offer to lease additional office space that becomes available within the 281 Summer Street premises. In connection with the office lease, the Company provided a security deposit, in the form of a letter of credit, in the amount of $ 0.8 million in January 2022. This letter of credit will be auto-renewed annually, unless a 60 day notice is received from the landlord. An automatic extension can only be implemented through November 30, 2032 . This letter of credit is irrevocable and does not have a cash requirement other than the amount already set forth. In the event of a default, the landlord must provide written notice of default before drawing from the letter of credit as a security deposit, or to remedy the amount owed.
The Company leases offices in Tokyo, Japan; Sydney, Australia; Chennai, India; Seoul, South Korea; London, England; Guadalajara, Mexico; Funchal, Portugal and Covilha, Portugal.
The Company’s rent expense was $ 4.1 million, $ 5.1 million, $ 4.3 million for the years ended December 31, 2023, 2022 and 2023, respectively.
The Company entered into one operating lease agreement in the current year, resulting in the recording of an initial liability and corresponding right-of-use asset of $ 0.3 million.
The weighted average remaining lease terms and discount rates were as follows:
December 31,
Weighted average remaining lease term (years)
Weighted average discount rate
The weighted-average remaining non-cancelable lease term for the Company’s operating leases was 7.77 years at December 31, 2023. The weighted-average discount rate was 5.9 % at December 31, 2023.
The Company’s operating leases expire at various dates through 2032. The following shows the undiscounted cash flows for the remaining years under operating leases at December 31, 2023:
Year Ending December 31,
Operating Lease Commitments
2029 and thereafter
Total operating lease commitments
Less imputed interest
Total lease liabilities
The Company’s discounted current operating lease liability and discounted non-current lease liability at December 31, 2023 were $ 4.5 million and $ 17.4 million, respectively.
In the fourth quarter of 2020 the Company subleased 100 % of one of its London offices through the remaining lease term. For the years ended December 31, 2023, 2022 and 2021 the Company recognized rent income of $ 0.8 million, $ 0.8 million and $ 0.9 million, respectively, within operating expenses. Lease income relating to variable lease payments was immaterial.
The Company’s London sublease expires in December of 2024. The undiscounted cash inflows from the London sublease for the remaining year at December 31, 2023 was $ 0.9 million.
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. The Company has typically limited the maximum potential value of such potential future payments in relation to the value of the contract. The Company has received requests for indemnification from customers in connection with patent infringement suits brought against the customer by a third party. Based on historical experience and information known as of December 31, 2023, the Company has incurred minimal costs for the above guarantees and indemnities.
In certain circumstances, the Company warrants that its products and services will perform in all material respects in accordance with its standard published specification documentation in effect at the time of delivery of the licensed products and services to the customer for the warranty period of the product or service. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes the estimated fair value of these agreements is immaterial.
10. Stockholders’ Equity
Common Stock
Common stockholders are entitled to one vote per share. Holders of common stock are entitled to receive dividends, when and if declared by the Board.
Common Stock Reserved for Future Issuance
At December 31, 2023, the Company has reserved the following shares of common stock for future issuance:
December 31, 2023
Common stock options outstanding
Restricted stock unit awards outstanding
Shares available for issuance under all stock-based compensation plans
Total shares of authorized common stock reserved for future issuance
11. Stock-Based Compensation
Stock-Based Compensation Plans
At December 31, 2023, the Company had seven stock-based compensation plans:
On February 8, 2022, the Company adopted the Brightcove Inc. 2022 Inducement Plan (the 2022 Plan). The 2022 Plan provides for the issuance of employment inducement awards to the Company’s Chief Executive Officer (CEO).
On March 25, 2021, the Board adopted, the Brightcove Inc. 2021 Stock Incentive Plan (the 2021 Plan) which was approved by the shareholders on May 11, 2021. On March 15, 2023, the Board adopted an amendment to the 2021 plan to increase the aggregate number of shares of Stock reserved for issuance under the Plan by 7,000,000 , which was approved by the shareholders on May 10, 2023. The maximum number of shares of stock reserved and available for issuance under the 2021 Plan, as amended, is 13,200,000 shares.
The 2018 Inducement Plan (the 2018 plan). Effective April 11, 2018, the Company adopted the 2018 Plan. The 2018 Plan provides for the issuance of stock options and restricted stock units to the Company’s CEO.
The Brightcove Inc. 2014 Stock Option Inducement Plan (the 2014 Stock Inducement Plan). In 2014, the Company adopted the 2014 Stock Inducement Plan in connection with the Unicorn asset purchase agreement.
The 2012 RSU Inducement Plan (the 2012 RSU Plan). In 2012, the Company adopted the 2012 RSU Plan in connection with the acquisition of Zencoder. The restricted stock units were settled in shares of the Company’s common stock upon vesting.
The 2012 Stock Incentive Plan (the 2012 Plan). The 2012 Plan provided for the issuance of incentive and non-qualified stock options, restricted stock, and other equity awards to the Company’s employees, officers, directors, consultants and advisors. In conjunction with the effectiveness of the 2021 Plan, the Board voted that no further stock options or other equity-based awards may be granted under the 2012 Plan.
The Amended and Restated 2004 Stock Option and Incentive Plan (the 2004 Plan). The 2004 Plan, like the 2012 Plan, provided for the issuance of incentive and non-qualified stock options, restricted stock, and other equity awards to the Company’s employees, officers, directors, consultants and advisors. In conjunction with the effectiveness of the 2012 Plan, the Board voted that no further stock options or other equity-based awards may be granted under the 2004 Plan.
The following table summarizes stock-based compensation expense as included in the consolidated statement of operations for the years ended December 31, 2023, 2022 and 2021:
Year Ended December 31,
Cost of subscription and support revenue
Cost of professional services and other revenue
Research and development
Sales and marketing
General and administrative
Other (expense) benefit
As of December 31, 2023, there was $ 25.4 million of total unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a weighted-average period of 2.3 years.
Stock Options
The following is a summary of the stock option activity for all stock option plans during the years ended December 31, 2023, 2022 and 2021:
Number of
Shares
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual
Term (In Years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 2020
Granted
Exercised
Cancelled
Outstanding at December 31, 2021
Granted
Exercised
Cancelled
Outstanding at December 31, 2022
Granted
Exercised
Cancelled
Outstanding at December 31, 2023
Exercisable at December 31, 2023
The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Company’s common stock on December 31, 2023, December 31, 2022, and December 31, 2021 of $ 2.59 , $ 5.23 , and $ 10.22 per share, respectively, or the date of exercise, as appropriate, and the exercise price of the underlying options.
On March 20, 2023, the Company granted 1,563,688 premium-priced options to some of its employees under its 2021 Stock Incentive Plan. The options have a strike price of $ 7.00 and vest in equal installments over three years following March 10, 2023. The binomial lattice model is used to estimate the fair value of the premium-priced options. The binomial lattice model calculates multiple potential outcomes for option exercises and establishes a fair value based on the most likely outcome. Key assumptions for the binomial lattice model include share price, volatility, the early exercise multiple, risk-free rate, expected dividends, and number of time steps.
Prior to 2023, the Company had only granted service-based options under its stock compensation plans. The fair value of each option grant issued under the Company’s stock-based compensation plans prior to 2023 was estimated using the Black-Scholes option-pricing model.
The weighted-average fair value of options granted and assumptions utilized to determine such values are presented in the following table:
Year Ended December 31,
Weighted-average fair value of options granted during the year
Risk-free interest rate
Expected volatility
Expected life (in years)
Expected dividend yield
Restricted Stock Units
The Company has entered into restricted stock unit (RSU) agreements with certain of its employees pursuant to the 2012 Plan, the 2021 Plan, and the 2022 Plan. Vesting occurs periodically at specified time intervals, ranging from three months to four years , and in specified percentages. Upon vesting, the holder will receive one share of the Company’s common stock for each unit vested.
Under the 2012 Plan, the Company granted restricted stock units to certain key executives, which contain both performance-based (“P-RSU”) and service-based vesting conditions (“S-RSU”). The Company measures compensation expense for these performance-based awards based upon a review of the Company’s expected achievement against specified financial performance targets. Compensation cost is recognized on a ratable basis over the requisite service period for each series of grants to the extent management has deemed that such awards are probable of vesting based upon the expected achievement against the specified targets. On a periodic basis, management reviews the Company’s expected performance and adjusts the compensation cost, if needed, at such time. The Company determined that the conditions for a portion of the performance-based restricted stock units were achieved in the first quarter of 2020. As such, the Company recognized $ 0.2 million of stock-based compensation expense relating to performance-based awards for the year ended December 31, 2021. The Company did not recognize stock-based compensation expense relating to the aforementioned performance-based awards in the years ended December 31, 2022, and 2023, respectively, as the Company determined that the conditions for further portions of the performance-based restricted stock units to vest were not .
Under the 2022 Plan, the Company granted 800,000 restricted stock units to the Company's CEO, in connection with the commencement of his employment on March 28, 2022. Of the total restricted stock units granted, 300,000 are subject solely to service-based vesting conditions (the “RSUs”) and 500,000 are subject to both market-based and service-based vesting conditions (the “PSUs”). The RSUs vest in equal annual installments over three years following March 28, 2022. The market-based vesting conditions applicable to the PSUs are achieved only if the volume weighted average price of the Company’s common stock during any 20 consecutive trading day period in the four year performance period following the CEO’s start date, March 28, 2022, equals or exceeds stock price hurdles ranging from $ 12.50 to $ 30.00 , increasing in seven increments of $ 2.50 . The percentage of the award that is earned upon achievement of each stock price hurdle is 10 % of the PSUs for each of the first two achievement tiers, 12.5 % for each of the next four achievement tiers and 15 % for each of the final two achievement tiers. The PSUs vest 50 % upon achievement of a stock price hurdle and 50 % upon the earlier of the one-year anniversary of such achievement date or March 28, 2025, subject to the CEO’s continued employment through the applicable vesting date.
For restricted stock units with market-based performance conditions, the cost of the awards is recognized as the requisite service is rendered by the employee, regardless of when, if ever, the market-based performance conditions are satisfied. The Monte-Carlo simulation model is used to estimate fair value of market-based performance restricted stock units. The Monte-Carlo simulation model calculates multiple potential outcomes for an award and establishes a fair value based on the most likely outcome. Key assumptions for the Monte-Carlo simulation model include the risk-free rate, expected volatility, expected dividends and the correlation coefficient.
The following table summarizes the P-RSU and S-RSU activity during the year ended December 31, 2023, 2022, and 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 by December 31, 2020
Granted
Vested and issued
Cancelled
Unvested by December 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 by December 31, 2021
Granted
Vested and issued
Cancelled
Unvested by December 31, 2022
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 by December 31, 2022
Granted
Vested and issued
Cancelled
Unvested by December 31, 2023
12. Income Taxes
Loss before the provision (benefit) for income taxes consists of the following jurisdictional (loss) income:
Year Ended December 31,
Domestic
Foreign
Total
The provision (benefit) for income taxes in the accompanying consolidated financial statements consists of the following:
Year Ended December 31,
Current provision:
Federal
State
Foreign
Total current
Deferred (benefit):
Federal
State
Foreign
Total deferred
Total (benefit) provision
A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is as follows:
Year Ended December 31,
Tax at statutory rates
State income taxes
Change in tax rate
Permanent differences
Global intangible low-taxed income
Foreign rate differential
Research and development credits
Change in valuation allowance
Other, net
Effective tax rate
The income tax effect of each type of temporary difference and carryforward as of December 31, 2023 and 2022 is as follows:
As of December 31,
Deferred tax assets:
Net operating loss carry-forwards
Tax credit carry-forwards
Stock-based compensation
Fixed Assets
Account receivable reserves
Accrued compensation
Lease Liability
Capitalized research expenditures
Other temporary differences
Total deferred tax assets
Deferred tax liabilities:
Other deferred tax liabilities
ROU Asset
Intangible assets
Total deferred tax liabilities
Valuation allowance
Net deferred tax asset (liability)
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 substantially all of its remaining U.S. net deferred tax assets as of December 31, 2023 and December 31, 2022, as 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. The Company has provided a valuation allowance against the net deferred tax assets of its foreign subsidiaries as of December 31, 2023 and December 31, 2022 largely based on the significant weight of negative evidence given to the consolidated worldwide cumulative loss position for the current year and the prior two years. The increase in the valuation allowance from 2022 to 2023 of $ 4.4 million principally relates to the current year U.S. losses and generation of federal and state research and development tax credits.
As of December 31, 2023 , the Company had federal net operating losses of approximately $ 154.0 million, of which $ 108.3 million are available to offset future taxable income, if any, through 2037 and $ 45.7 million which are available to offset future taxable income indefinitely. As of December 31, 2023 , the Company had state net operating losses of approximately $ 76.5 million, of which $ 73.4 million are available to offset future taxable income, if any, through 2041 and $ 3.1 million which are available to offset future taxable income indefinitely. The Company also had federal and state research and development tax credits of $ 10.7 million and $ 6.3 million, respectively, which expire in various amounts through 2043 . The net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules under the U.S. Internal Revenue Code of 1986, as amended. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company completed an analysis covering the tax periods from inception through December 31, 2022 and performed a high level assessment of the period January 1, 2023 through December 31, 2023 to determine whether there may have been a Section 382 ownership change and determined that it is more-likely-than-not that the Company’s net operating and tax credit amounts as are not subject to any material Section 382 .
Effective January 1, 2022, the Tax Cuts and Jobs Act of 2017 requires the Company to capitalize, and subsequently amortize R&D expenses over five years for research activities conducted in the U.S. and over fifteen years for research activities conducted outside of the U.S. As of December 31, 2023, the Company has recorded a deferred tax asset of $ 13.2 million related to the capitalized R&D expenditures which is offset by a decrease in its net operating loss carryforward.
At December 31, 2023 and 2022 , the Company had no recorded liabilities for uncertain tax positions, nor any accrued interest or penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal tax jurisdiction, various state and various foreign jurisdictions. The Company is currently open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions for the tax years ended 2020 through 2023. Since the Company is in a U.S. loss carryforward position, carryforward tax attributes generated in prior years may still be adjusted upon future examination if they have or will be used in a future period. Additionally, certain non-U.S. jurisdictions are no longer subject for income tax examinations by authorities for tax years before 2018.
No additional U.S. income taxes or foreign withholding taxes have been provided for any additional outside basis differences inherent in the Company’s foreign entities as these amounts continue to be indefinitely reinvested in foreign operations based on management’s current intentions. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time transition tax) is not practicable.
13. Debt
On November 1, 2023 , the Company entered into a loan modification agreement to an existing amended and restated loan and security agreement with a lender (collectively, the “Loan Agreement”). The Loan Agreement provides for up to a $ 30.0 million asset-backed 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 prime rate plus 225 basis points and (ii) for Secured Overnight Financing Rate ('SOFR") advances, the greater of (A) the SOFR rate plus 225 basis points and (B) 4 %. Under the Loan Agreement, the Company must comply with certain financial covenants, including maintaining a minimum asset coverage ratio. If there is outstanding principal during any month, 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 November 1, 2026
. The Company was in compliance with all applicable covenants under the Line of Credit as of December 31, 2023 and there were no borrowings outstanding as of December 31, 2023 .
14. Accrued Expenses
Accrued expenses consist of the following:
December 31,
Accrued payroll and related benefits
Accrued sales and other taxes
Accrued professional fees and outside contractors
Accrued content delivery
Accrued other liabilities
Total
15. Segment Information
Disclosure requirements about segments of an enterprise and related information establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in interim financial reports issued to stockholders. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief decision maker is its chief executive officer. The Company and the chief decision maker view the Company’s operations and manage its business as one operating segment.
Geographic Data
Total revenue to unaffiliated customers by geographic area, based on the location of the customer, was as follows:
Year Ended December 31,
Revenue:
North America
Europe
Japan
Asia Pacific
Other
Total revenue
North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers located in the United States was $ 111.7 million, $ 111.8 million and $ 111.5 million during the years ended December 31, 2023, 2022 and 2021, respectively. Other than the United States and Japan, no country contributed more than 10 % of the Company’s total revenue during the years ended December 31, 2023 , 2022, and 2021, respectively.
16. 401(k) Savings Plan
The Company maintains a defined contribution savings plan covering all eligible U.S. employees under Section 401(k) of the Internal Revenue Code. Company contributions to the plan may be made at the discretion of the Board. During the years ended December 31, 2023, 2022 and 2021, the Company has made contributions to the plan of $ 1.4 million, $ 0.8 million and $ 0.4 million, respectively.
17. Restructuring
In March 2023, the Company took an action to restructure certain parts of the Company with the intent of aligning skills with the Company’s strategy and facilitating cost efficiencies and savings. As a result certain headcount reductions were necessary. The Company incurred approximately $ 0.4 million in restructuring charges during the year ended December 31, 2023 in connection with this action. The restructuring charges reflect post-employment benefits, and the Company does not expect to incur any additional restructuring charges related to this action. The restructuring charges are reflected in the Condensed Consolidated Statements of Operations as follows: $ 0.2 million - General and Administrative; $ 0.1 million – Research and Development; and $ 0.1 million – Sales and Marketing. The Company paid the entire amount by March 31, 2023.
On April 28, 2023, the Company authorized a restructuring that is designed to reduce operating costs, improve operating margins and focus on key growth and strategic priorities (the "Plan"). The Plan includes a reduction of the Company's then-current workforce by approximately 10 %. The Company incurred approximately $ 2.4 million in restructuring charges during the year ended December 31, 2023 in connection with the Plan. The restructuring charges reflect post-employment benefits. The restructuring charges are reflected in the Condensed Consolidated Statements of Operations as follows: $ 1.2 million in Sales and Marketing; $ 0.9 million in Research and Development; $ 0.2 million in General and administrative and $ 0.1 million in Cost of Revenue. The Company paid all $ 2.4 million of the restructuring charges by September 30, 2023.
18. Subsequent Events
On January 11, 2024, the Company took an action to restructure certain parts of the Company with the intent of aligning skills with the Company’s strategy and facilitating cost efficiencies and savings. As a result certain headcount reductions were necessary. The Company estimates it will incur between $ 1.6 million and $ 1.8 million in restructuring charges in the three months ended March 31, 2024 in connection with this action. The restructuring charges will primarily reflect post-employment benefits and will be reflected in the Condensed Consolidated Statements of Operations. The Company expects to pay the amounts due as a result of the restructuring action by June 30, 2024, with the majority expected to be paid before March 31, 2024.
On February 21, 2024, Robert Noreck, the Company’s Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer (collectively, “CFO”), notified the Company of his intention to resign. The Company and Mr. Noreck entered into a Transition and Resignation Agreement dated February 21, 2024 , pursuant to which Mr. Noreck will step down as CFO effective as of the earlier of May 31, 2024 and the appointment of a successor CFO (the “Transition Date”). Beginning on the Transition Date, Mr. Noreck will transition into the role of a consultant through September 30, 2024, at which time Mr. Noreck’s services to the Company will terminate. The Company has agreed that Mr. Noreck’s employment need not be exclusive to the Company after June 1, 2024.
Item 9.
Cha nges in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Contr ols and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control-Integrated Framework (2013). Based on this assessment and those criteria, management concluded that our internal control over financial reporting was effective as of December 31, 2023.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Brightcove Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Brightcove Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Brightcove Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated February 22, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 22, 2024
Item 9B.
Othe r Information
During the three month period ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted , terminated or modified a Rule 10b5-1 trading arrangement or any “non-Rule 10b5-1 trading agreement” (as defined in Item 408(c) of Regulation S-K).
Item 9C.
Disclosure Reg arding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors , Executive Officers, and Corporate Governance
Incorporated by reference from the information in our Proxy Statement for our 2024 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates.
