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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Company Overview
We are a leading global provider of cloud-based services for video. We were incorporated inDelaware inAugust 2004 . With our Emmy®-winning technology and award-winning services, we help our customers realize the potential of video to address business-critical challenges. Customers rely on our suite of products, services, and expertise to reduce the cost and complexity associated with publishing, distributing, measuring and monetizing video across devices. We sell five core video products that help our customers use video to further their businesses in meaningful ways: (1) Video Cloud, our flagship product and the world's leading online video platform, enables our customers to quickly and easily distribute high-quality video to Internet-connected devices; (2) Brightcove Live, our industry-leading solution for live streaming, delivers high-quality viewer experiences at scale; (3) Brightcove Beacon, a purpose-built application that enables companies to launch premium OTT video experiences quickly and cost effectively, across devices and with the flexibility of multiple monetization models; (4) Brightcove Player, an exceptionally fast, cloud-based technology for creating and managing video experiences; and (5) Zencoder, a powerful, cloud-based video encoding technology. Customers can complement their use of our core products with modular technologies that provide enhanced capabilities such as (1) innovative ad insertion and video stitching through Brightcove SSAI; (2) efficient publication of videos to Facebook, Twitter, and YouTube through Brightcove Social; (3) an app for creating marketing campaigns with insightful data and industry benchmarks through Brightcove Campaign; and (4) create branded video experience by accessing templates with built-in best practices throughBrightcove Gallery . We have also brought to market several video solutions, which are comprised of a suite of video technologies that address specific customer use-cases and needs: (1) Virtual Events Experience helps brands to transform events into customized virtual experiences; (2) Brightcove Video Marketing Suite, enables marketers to use video to drive brand awareness, engagement and conversion; (3) Brightcove Enterprise Video Suite, provides an enterprise-class platform for internal communications, employee training, live streaming, marketing and ecommerce videos; and (4) Brightcove CorpTV™, provides a new way to deliver marketing videos, product announcements, training programs, and other live and on-demand content in a branded experience for companies. 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
We generate revenue by offering our products to customers on a subscription-based, software as a service, or SaaS, model. Our revenue increased from$106.3 in the six months endedJune 30, 2021 to$107.8 in the six months endedJune 30, 2022 , due to an increase in subscription and support revenue. This increase was due to an increase in the average annual subscription revenue per premium customer during the six months endedJune 30, 2022 as compared to the prior period and an increase in usage-based fees during the three months endedJune 30, 2022 as compared to the prior period. Included in the consolidated net loss for the six months endedJune 30, 2022 was stock-based compensation expense and amortization of acquired intangible assets of$7.1 million and$1.6 million , respectively. Included in the consolidated net income for the six months endedJune 30, 2021 was merger-related expense, stock-based compensation expense and amortization of acquired intangible assets of$0.3 million ,$4.9 million and$1.5 million , respectively. 17
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For the three and six months endedJune 30, 2022 and 2021, our revenue derived from customers located outsideNorth America was 45% and 44%, and 43% and 43%, respectively. We expect the percentage of total net revenue derived from outsideNorth America to increase in future periods as we continue to expand our international operations.
Key Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
The following table includes our key metrics for the periods presented:
Six Months Ended June 30,
2022 2021
Customers (at period end)
Premium 2,301 2,280
Volume 636 983
Total customers (at period end) 2,937
3,263
Net revenue retention rate 96.4 % 98.2 % Recurring dollar retention rate 87.5 % 86.0 % Average annual subscription revenue per premium customer, excluding Starter edition customers (in thousands)$ 96.6 $ 94.4 Average annual subscription revenue per premium customer for Starter edition customers only (in thousands) $ 4.2 $ 4.5 Total backlog, excluding professional services engagements (in millions)$ 151.9
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 premium offerings include our premium Video Cloud customers (Enterprise and Pro editions), our Zencoder customers (other than Zencoder customers on month-to-month contracts and pay-as-you-go contracts), our SSAI customers, our Player customers, our OTT Flow customers (OTT Flow is our partner-based OTT platform, which preceded Brightcove Beacon), our Virtual Event Experience customers, our Video Marketing Suite customers, our Enterprise Video Suite customers, our Brightcove Beacon customers, our Brightcove Engage customers, our Brightcove CorpTV™ customers, and our Brightcove Campaign customers. Our volume offerings include our Video Cloud Express customers and our Zencoder customers on month-to-month contracts and pay-as-you-go contracts. Our go-to-market focus and growth strategy is to expand our premium customer base, as we believe our premium customers represent a greater opportunity for our solutions. Premium customers decreased compared to the prior period due to some customers deciding to switch to in-house solutions or other third-party solutions and some customers acquired in the Ooyala acquisition deciding not to switch to our solution. Volume customers decreased in recent periods primarily due to our discontinuation of the promotional Video Cloud Express offering. As a result, we have experienced attrition of this base level offering without a corresponding addition of customers. We expect customers using our volume offerings to continue to decrease in 2022 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.
•
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
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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.
COVID-19 and Geopolitical Events
While the future trends of the COVID-19 pandemic remain uncertain, we have not experienced a significant disruption during the pandemic. We will continue to monitor COVID-19's effect on our employees, customers, vendors and the regions we operate in. In lateFebruary 2022 , Russian military forces launched significant military action againstUkraine , and sustained conflict and disruption in the region is likely. Subsequent to the invasion, theU.S. and other countries imposed economic sanctions against officials, individuals, regions, and industries inRussia ,Ukraine andBelarus . We do not have operations or customers inRussia orUkraine and none of our material vendors source their services to us fromRussia orUkraine . We will continue to monitor the situation and comply with any sanctions and restrictions imposed by theU.S. government.
Components of Consolidated Statements of Operations
Revenue
Subscription and Support Revenue – We generate subscription and support revenue
from the sale of our products.
Video Cloud is offered in two product lines. The first product line is comprised
of our premium product editions. All premium editions include functionality to
publish and distribute video to Internet-connected devices, with higher levels
of premium editions providing additional features and functionality. Customer
arrangements are typically one-year contracts, which include a subscription to
Video Cloud, basic support and a pre-determined amount of video streams,
bandwidth, transcoding and storage. We also offer gold, platinum and platinum
plus support to our premium customers for an additional fee. The pricing for our
premium editions is based on the value of our software, as well as the number of
users, accounts and usage, which is comprised of video streams, bandwidth,
transcoding and storage. Should a customer's usage exceed the contractual
entitlements, the contract will provide the rate at which the customer must pay
for actual usage above the contractual entitlements. The second product line is
comprised of our volume product edition. Our volume editions target small and
medium-sized businesses, or SMBs. The volume editions provide customers with the
same basic functionality that is offered in our premium product editions but
have been designed for customers who have lower usage requirements and do not
typically require advanced features and functionality. We discontinued the lower
level pricing options for the Express edition of our volume offering and expect
the total number of customers using the Express edition to continue to decrease.
Customers who purchase the volume editions generally enter into month-to-month
agreements. Volume customers are generally billed on a monthly basis and pay via
a credit card.
Virtual Events Experience, Brightcove Live and Brightcove Player are offered to
customers on a subscription basis. Customer arrangements are typically one-year
contracts, which include a subscription to Virtual Events Experience, Brightcove
Live or the Brightcove Player, basic support and a pre-determined amount of
video streams, bandwidth, transcoding, and storage and only video streams for
Brightcove Player. We also offer gold, platinum, and platinum plus support to
our Virtual Events Experience, Brightcove Live and Brightcove Player customers
for an additional fee. The pricing for these products is based on the value of
our software, as well as, the number of users, accounts and usage. Should a
customer's usage exceed the contractual entitlements, the contract will provide
the rate at which the customer must pay for actual usage above the contractual
entitlements.
Zencoder is offered to customers on a subscription basis, with either committed
contracts or pay-as-you-go contracts. The pricing is based on usage, which is
comprised of minutes of video processed. The committed contracts include a fixed
number of minutes of video processed. Should a customer's usage exceed the
contractual entitlements, the contract will provide the rate at which the
customer must pay for actual usage above the contractual entitlements. Zencoder
customers are considered premium customers other than Zencoder customers on
month-to-month contracts or pay-as-you-go contracts, which are considered volume
customers.
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Brightcove Beacon and Brightcove Campaign are each offered to customers on a subscription basis, with varying levels of functionality, usage entitlements and support based on the size and complexity of a customer's needs. Customer arrangements are typically one-year contracts. Video Marketing Suite and Enterprise Video Suite are offered to customers on a subscription basis in Starter, Pro and Enterprise editions. The Pro and Enterprise customer arrangements are typically one-year contracts, which typically include a subscription to Video Cloud, Gallery, Brightcove Social (for Video Marketing Suite customers) or Brightcove Live (for Enterprise Video Suite customers), basic support and a pre-determined amount of video streams or plays (for Video Marketing Suite customers), viewers (for Enterprise Video Suite customers), bandwidth and storage or videos. We also generally offer gold support or platinum support to these customers for an additional fee, which includes extended phone support. The pricing for our Pro and Enterprise editions is based on the number of users, accounts and usage, which is comprised of video streams or plays, viewers, bandwidth and storage or videos. Should a customer's usage exceed the contractual entitlements, the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements, or will require the customer to upgrade its package upon renewal. The Starter edition provides customers with the same basic functionality that is offered in our Pro and Enterprise editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality. Customers who purchase the Starter edition may enter into one-year agreements or month-to-month agreements. Starter customers with month-to-month agreements are generally billed on a monthly basis and pay via a credit card.
All Brightcove Beacon, Brightcove CorpTV™, OTT Flow, Brightcove Campaign,
Brightcove Live, SSAI, Player, Virtual Events Experience, Video Marketing Suite,
and Enterprise Video Suite customers are considered premium customers.
Professional Services and Other Revenue - Professional services and other revenue consists of services such as implementation, software customizations and project management for customers who subscribe to our premium editions. These arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed, or on a time and materials basis.
Cost of Revenue
Cost of subscription, support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services. These costs include salaries, benefits, incentive compensation and stock-based compensation expense related to the management of our data centers, our customer support team and our professional services staff. In addition to these expenses, we incur third-party service provider costs such as data center and content delivery network, or CDN, expenses, allocated overhead, depreciation expense and amortization of capitalized internal-use software development costs and acquired intangible assets. We allocate overhead costs such as rent, utilities and supplies to all departments based on relative headcount. As such, general overhead expenses are reflected in cost of revenue in addition to each operating expense category. The costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscription and support services due to the labor costs of providing professional services. Cost of revenue increased in absolute dollars from the first six months of 2021 to the first six months of 2022. 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
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functionality, as well as changes in the technology that our products must
support, such as new operating systems or new Internet-connected devices.
Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, incentive compensation, commissions, stock-based compensation and travel costs, amortization of acquired intangible assets, in addition to costs associated with marketing and promotional events, corporate communications, advertising, other brand building and product marketing expenses and allocated overhead. Our sales and marketing expenses have increased in absolute dollars in each of the last three years. We intend to continue to invest in sales and marketing and expand the sale of our product offerings within our existing customer base, build brand awareness and sponsor additional marketing events. Accordingly, we expect sales and marketing expense to continue to be our most significant operating expense in future periods. Over the long term, we believe that sales and marketing expense as a percentage of revenue will decrease, but will vary depending upon the mix of revenue from new and existing customers and from small, medium-sized and enterprise customers, as well as changes in the productivity of our sales and marketing programs.
General and Administrative. General and administrative expenses consist
primarily of personnel and related expenses for executive, legal, finance,
information technology and human resources functions, including salaries,
benefits, incentive compensation and stock-based compensation. General and
administrative expenses also include the costs associated with professional
fees, insurance premiums, other corporate expenses and allocated overhead. Over
the long term, we believe that general and administrative expenses as a
percentage of revenue will decrease.
Merger-related. Merger-related costs consist of expenses related to mergers and
acquisitions, integration costs and general corporate development activities.
Other 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 existingU.S. net deferred tax assets atDecember 31, 2021 . We maintain net deferred tax liabilities for temporary differences related to our Japanese subsidiary.
During the six months ended
of
allowance. This release of the valuation allowance is related to the Wicket
Acquisition completed in
liabilities in purchase accounting that serve as a source of income for our
pre-existing deferred tax assets.
Stock-Based Compensation Expense
Our cost of revenue, research and development, sales and marketing, and general and administrative expenses include stock-based compensation expense. Stock-based compensation expense represents the grant date fair value of outstanding stock options and restricted stock awards, which is recognized as expense over the respective stock option and restricted stock award service periods. For the three months endedJune 30, 2022 and 2021, we recorded$3.6 million and$2.6 million , respectively, of stock-based compensation expense. We expect stock-based compensation expense to increase in absolute dollars in future periods.
Foreign Currency Translation
With regard to our international operations, we frequently enter into transactions in currencies other than theU.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 theU.S. dollar declines in value as compared 21
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to the foreign currencies in which we conduct business, our foreign currency-based revenue and expenses generally increase in value when translated intoU.S. dollars. During the six months endedJune 30, 2022 , theU.S. dollar increased in value as compared to the foreign currencies in which we conduct business, and our foreign currency-based revenues decreased in value when translated intoU.S. dollars. We expect the percentage of total net revenue derived from outsideNorth America to increase in future periods as we continue to expand our international operations. Should theU.S. dollar continue to increase in value, our future percentage of total net revenue derived from outsideNorth 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 inthe United States . The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. We consider the assumptions and estimates associated with revenue recognition, income taxes, business combinations, intangible assets and goodwill to be our critical accounting policies and estimates. We discuss any assumptions and estimates that could have a material effect on the results of operations in the applicable section of this discussion and analysis of the financial condition and results of operations. For a detailed explanation of the judgments made in these areas, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , which we filed with theSecurities and Exchange Commission onFebruary 18, 2022 . Results of Operations The following tables set forth our results of operations for the periods presented. The data has been derived from the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q which, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the interim periods presented. The period-to-period comparison of financial results is not necessarily 22
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indicative of future results. This information should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in thousands, except share and per share data) Revenue: Subscription and support revenue$ 52,988 $ 48,602 $ 104,589 $ 99,441 Professional services and other revenue 1,459 2,870 3,237 6,848 Total revenue 54,447 51,472 107,826 106,289 Cost of revenue: Cost of subscription and support revenue 16,943 14,756 33,925 30,434 Cost of professional services and other revenue 1,761 2,468 3,759 5,958 Total cost of revenue 18,704 17,224 37,684 36,392 Gross profit 35,743 34,248 70,142 69,897 Operating expenses: Research and development 8,372 7,855 16,609 16,139 Sales and marketing 17,961 18,130 36,249 34,279 General and administrative 8,554 7,418 16,643 14,477 Merger-related 153 255 747 255 Other expense (benefit) - - 1,149 (1,965 ) Total operating expenses 35,040 33,658 71,397 63,185 Income (loss) from operations 703 590 (1,255 ) 6,712 Other (expense) income, net (825 ) 117 (1,212 ) (618 ) (Loss) income before income taxes (122 ) 707 (2,467 ) 6,094 Provision (benefit) for income taxes 179 (163 ) (529 ) 94 Net (loss) income $ (301 ) $ 870$ (1,938 ) $ 6,000 Net (loss) income per share-basic and diluted Basic$ (0.01 ) $ 0.02$ (0.05 ) $ 0.15 Diluted$ (0.01 ) $ 0.02$ (0.05 ) $ 0.14 Weighted-average shares-basic and diluted Basic 41,723 40,615 41,580 40,386 Diluted 41,723 42,209 41,580 42,391
Overview of Results of Operations for the Three Months Ended
2021
Total revenue increased by 6%, or$3.0 million , in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 due to an increase in subscription and support revenue of 9% or$4.4 million , primarily due to an increase in revenue from our premium offerings. The increase in revenue from our premium offerings was due to an increase in the average annual subscription revenue per premium customer and an increase in usage-based fees. Professional services and other revenue decreased by 49% or$1.4 million in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . 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 revenue from premium offerings increased by$3.3 million , or 7%, in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . 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. TheU.S. dollar has strengthened against the Japanese Yen and the Euro when compared against exchange rates during the prior year period of comparison. In constant currency, our total revenue for the three months endedJune 30, 2022 would have been approximately$56.2 million . The majority of the effect of revenue in constant currency was in revenues denominated in Japanese Yen of$634 and Euro of$687 . Constant currency is calculated as translating current period revenue denominated in foreign currencies at the exchange rates of the prior period of comparison. Our gross profit increased by$1.5 million , or 4%, in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily due to an increase in subscription and support revenue. Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery. Income from operations was$0.7 million in the three months endedJune 30, 2022 compared to income from operations of$0.6 million in the three months endedJune 30, 2021 . This is primarily due to an increase in revenue of$3.0 million and an improvement 23
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of gross profit on subscription and support revenue in the three months ended
Revenue
Three Months Ended June 30,
2022 2021 Change
Percentage of Percentage of
Revenue by Product Line Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Premium $ 53,998 99 % $ 50,694 99 % $ 3,304 7 %
Volume 449 1 778 1 (329 ) (42 )
Total $ 54,447 100 % $ 51,472 100 % $ 2,975 6 %
During the three months ended June 30, 2022 , revenue increased by $3.0 million ,
or 6%, compared to the three months ended June 30, 2021 , primarily due to an
increase in revenue from our premium offerings. The increase in premium revenue
of $3.3 million , or 7%, is the result of the increase in average annual
subscription revenue per premium customer and an increase in usage-based fees.
In the three months ended June 30, 2022 , volume revenue decreased by $329 , or
42%, compared to the three months ended June 30, 2021 , as we continue to focus
on the market for our premium solutions.
Three Months Ended June 30,
2022 2021 Change
Percentage of Percentage of
Revenue by Type Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 52,988 97 % $ 48,602 94 % $ 4,386 9 %
Professional services and
other 1,459 3 2,870 6 % (1,411 ) (49 )
Total $ 54,447 100 % $ 51,472 100 % $ 2,975 6 %
During the three months ended June 30, 2022 , subscription and support revenue
increased compared to the three months ended June 30, 2021 . Professional
services and other revenue decreased by $1.4 million , or 49%, compared to the
corresponding quarter in the prior year. Professional services and other revenue
will vary from period to period depending on the number of implementations and
other projects that are in process.
Three Months Ended June 30,
2022 2021 Change
Percentage of Percentage of
Revenue by Geography Amount Revenue Amount
Revenue Amount %
(in thousands, except percentages) North America$ 30,019 55 %$ 29,398 57 %$ 621 2 % Europe 10,128 19 9,547 19 581 6 Japan 5,077 9 5,370 10 (293 ) (5 ) Asia Pacific 9,060 17 7,016 14 2,044 29 Other 163 - 141 - 22 16 International subtotal 24,428 45 22,074 43 2,354 11 Total$ 54,447 100 %$ 51,472 100 %$ 2,975 6 % For purposes of this section, we designate revenue by geographic regions based upon the locations of our customers.North America is comprised of revenue fromthe United States ,Canada andMexico . International is comprised of revenue from locations outside ofNorth America . Depending on the timing of new customer contracts, revenue mix from a geographic region can vary from period to period. During the three months endedJune 30, 2022 , total revenue forNorth America increased by$621 , or 2%, compared to the three months endedJune 30, 2021 . In the three months endedJune 30, 2022 , total revenue outside ofNorth America increased by$ 2.35 million , or 11%, compared to the three months ended June 30, 2021. The increase in revenue from international regions is primarily related to an increase in usage-based revenue inAsia Pacific . 24
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Cost of Revenue
Three Months Ended June 30,
2022 2021 Change
Percentage of Percentage of
Related Related
Cost of Revenue Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 16,943 32 % $ 14,756 30 % $ 2,187 15 %
Professional services and other 1,761 121 2,468 86 (707 ) (29 )
Total $ 18,704 34 % $ 17,224 33 % $ 1,480 9 %
In the three months ended June 30, 2022 , cost of subscription and support
revenue increased by $ 2.2 million , or 15%, compared to the three months ended
June 30, 2021 . The increase resulted primarily from an increase in content
delivery network and network hosting services expenses in the three months ended
June 30, 2022 compared to the three months ended June 30, 2021 . In the three
months ended June 30, 2022 , cost of professional services and other revenue
decreased by$ 0.7 million, or 29%, compared to the three months ended June 30,
2021. This decrease corresponds to the 49% decrease professional services and
other revenue in the three months ended June 30, 2022 , compared to the three
months ended June 30, 2021 .
Gross Profit
Three Months Ended June 30,
2022 2021 Change
Percentage of Percentage of
Related Related
Gross Profit Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Subscription and support $ 36,045 68 % $ 33,846 70 % $ 2,199 6 %
Professional services and other (302 ) (21 ) 402 14 (704 ) (175 )%
Total $ 35,743 66 % $ 34,248 67 % $ 1,495 4 %
The overall gross profit percentage was 66% for the three months ended June 30,
2022 compared to 67% for the three months ended June 30, 2021 . Subscription and
support gross profit increased $2.2 million in the three months ended June 30,
2022 compared to the three months ended June 30, 2021 . The increase in gross
profit dollars for subscription and support revenue was due to the 9% increase
in subscription and support revenue. Professional services and other gross
profit decreased $704 , or 175%. The decrease in gross profit dollars for
professional services and other revenue was due to the 49% decrease in
professional services and other revenue.
Operating Expenses
Three Months Ended June 30,
2022 2021 Change
Percentage of Percentage of
Operating Expenses Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Research and development $ 8,372 15 % $ 7,855 15 % $ 517 7 %
Sales and marketing 17,961 33 18,130 35 (169 ) (1 )
General and administrative 8,554 16 7,418 14 1,136 15
Merger-related 153 - 255 - (102 ) (40 )
Other expense (benefit) - - - - - NM
Total $ 35,040 64 % $ 33,658 65 % $ 1,382 4 %
Research and Development. In the three months ended June 30, 2022 , research and
development increased by $517 or 7% compared to the three months ended June 30,
2021 , primarily due to an increase in stock-based compensation expense of $404 .
The remaining increase was due to various other expenses that, in aggregate,
increased by approximately $113 . We expect our research and development expense
as a percentage of revenue to remain relatively unchanged.
Sales and Marketing. In the three months ended June 30, 2022 , sales and
marketing expense decreased by $169 , or 1%, compared to the three months ended
June 30, 2021 , primarily due to a decrease in marketing program expenses of $1.0
million , offset
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by an increase in employee-related expenses of$816 . We expect that our sales and marketing expense will increase in absolute dollars for the remainder of 2022 as compared to the prior period as we will continue to invest in these activities to support revenue growth. General and Administrative. In the three months endedJune 30, 2022 , general and administrative expense increased by$1.1 million , or 15%, compared to the three months endedJune 30, 2021 , primarily due to increases in employee-related and stock-based compensation expenses of$707 and$515 , respectively. These increases were offset by various other expenses that, in aggregate, decreased by approximately$86 . In future periods, we expect general and administrative expense to remain relatively unchanged.
Merger-Related. In the three months ended
remained relatively unchanged compared to the three months ended
Provision (benefit) for Income taxes. In the three months ended
provision (benefit) for income taxes expense remained relatively unchanged
compared to the three months ended
Overview of Results of Operations for the Six Months Ended
2021
Total revenue increased by 1%, or$1.5 million , in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 due to an increase in subscription and support revenue of 5%, or$5.1 million , primarily due to an increase in revenue from our premium offerings during the three months endedJune 30, 2022 as described in the results of operations for that period. Professional services and other revenue decreased by 53%, or$3.6 million , compared to the corresponding period in the prior year. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. Our revenue from premium offerings grew by$2.1 million , or 2%, in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . 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. TheU.S. dollar has strengthened against the Japanese Yen and the Euro when compared against exchange rates during the prior year period of comparison. In constant currency, our total revenue for the six months endedJune 30, 2022 would have been approximately$110.8 million . The majority of the effect of revenue in constant currency was in revenues denominated in Japanese Yen of$1.3 million and Euro of$982 . Constant currency is calculated as translating current period revenue denominated in foreign currencies at the exchange rates of the prior period of comparison. Our gross profit increased remained relatively unchanged in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . Our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery. Loss from operations was$1.3 million in the six months endedJune 30, 2022 compared to income from operations of$6.7 million in the six months endedJune 30, 2021 . This is primarily due to an increase in operating expenses of$8.2 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . Revenue Six Months Ended June 30, 2022 2021 Change Percentage of Percentage of Revenue by Product Line Amount Revenue Amount
Revenue Amount %
(in thousands, except percentages) Premium$ 106,770 99 %$ 104,716 99 %$ 2,054 2 % Volume 1,056 1 1,573 1 (517 ) (33 ) Total$ 107,826 100 %$ 106,289 100 %$ 1,537 1 % During the six months endedJune 30, 2022 , revenue increased by$1.5 million , or 1%, compared to the six months endedJune 30, 2021 , primarily due to an increase in revenue from our premium offerings, which consists of subscription and support revenue as well as professional services. The increase in premium revenue of$2.1 million , or 2%, is primarily the result of an 2% increase in average annual subscription revenue per premium customer during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . This increase in average annual subscription revenue per premium customer is primarily due to premium customers ordering more of our products. 26
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During the six months endedJune 30, 2022 , volume revenue decreased by$517 or 33%, compared to the six months endedJune 30, 2021 , as we continue to focus on the market for our premium solutions. Six Months Ended June 30, 2022 2021 Change Percentage of Percentage of Revenue by Type Amount Revenue Amount Revenue Amount % (in thousands, except percentages) Subscription and support$ 104,589 97 %$ 99,441 94 %$ 5,148 5 % Professional services and other 3,237 3 6,848 6 (3,611 ) (53 ) Total$ 107,826 100 %$ 106,289 100 %$ 1,537 1 %
During the six months ended
increased by
2021
revenue per premium customer and an increase in usage-based fees.
In addition, professional services and other revenue decreased by$3.6 million , or 53%, compared to the corresponding period in the prior year. Professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process. Six Months Ended June 30, 2022 2021 Change Percentage of Percentage of Revenue by Geography Amount Revenue Amount Revenue Amount % (in thousands, except percentages) North America$ 59,480 56 %$ 59,784 56 %$ (304 ) (1 )% Europe 19,233 18 18,470 17 763 4 Japan 12,338 11 13,078 12 (740 ) (6 ) Asia Pacific 16,496 15 14,675 14 1,821 12 Other 279 - 282 - (3 ) (1 ) International subtotal 48,346 44 46,505 43 1,841 4 Total$ 107,826 100 %$ 106,289 100 %$ 1,537 1 %
During the six months ended
remained relatively unchanged compared to the six months ended
During the six months endedJune 30, 2022 , total revenue outside ofNorth America increased$1.8 million , or 4%, compared to the six months endedJune 30, 2021 . The increase in revenue from international regions is primarily related to an increase in usage-based revenue inAsia Pacific . Cost of Revenue Six Months Ended June 30, 2022 2021 Change Percentage of Percentage of Related Related Cost of Revenue Amount Revenue Amount Revenue Amount % (in thousands, except percentages) Subscription and support$ 33,925 32 %$ 30,434 31 %$ 3,491 11 % Professional services and other 3,759 116 5,958 87 (2,199 ) (37 ) Total$ 37,684 35 %$ 36,392 34 %$ 1,292 4 % In the six months endedJune 30, 2022 , cost of subscription and support revenue increased$3.5 million , or 11%, compared to the six months endedJune 30, 2021 . The increase resulted primarily from an increase in content delivery network, network hosting services, and third-party software integration expenses of$1.7 million ,$1.5 million , and$1.0 million , respectively. These increases were offset by a decrease in partner commissions of$807 . The remaining increase was due to various other expenses that, in aggregate, increased by approximately$70 . 27
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In the six months endedJune 30, 2022 , cost of professional services and other revenue decreased$2.2 million , or 37%, compared to the six months endedJune 30, 2021 . This decrease corresponds to a decrease in contractor expenses of$2.2 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . Gross Profit Six Months Ended June 30, 2022 2021 Change Percentage of Percentage of Related Related Gross Profit Amount Revenue Amount Revenue Amount % (in thousands, except percentages) Subscription and support$ 70,664 68 %$ 69,007 69 %$ 1,657 2 % Professional services and other (522 ) (16 ) 890 13 (1,412 ) (159 ) Total$ 70,142 65 %$ 69,897 66 %$ 245 0 % The overall gross profit percentage was 65% and 66% for the six months endedJune 30, 2022 and 2021, respectively. Subscription and support gross profit increased$1.7 million , or 2%, compared to the six months endedJune 30, 2021 . Professional services and other gross profit decreased by$1.4 million , or 159%, compared to the six months endedJune 30, 2021 . 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 Six Months Ended June 30, 2022 2021 Change Percentage of Percentage of Operating Expenses Amount Revenue Amount
Revenue Amount %
(in thousands, except percentages)
Research and development $ 16,609 15 % $ 16,139 15 % $ 470 3 %
Sales and marketing 36,249 34 34,279 32 1,970 6
General and administrative 16,643 15 14,477 14 2,166 15
Merger-related 747 1 255 - 492 193
Other (benefit) expense 1,149 1 (1,965 ) (2 ) 3,114 (158 )
Research and Development. In the six months ended June 30, 2022 , research and
development expense increased by $470 , or 3%, compared to the six months ended
June 30, 2021 primarily due to an increase in stock-based compensation expense
of $804 , offset by a decrease in employee-related expenses of $422 . The
remaining increase was due to various other expenses that, in aggregate,
increased by approximately $89 .
Sales and Marketing. In the six months ended June 30, 2022 , sales and marketing
expense increased by $2.0 million , or 6%, compared to the six months ended June
30, 2021 primarily due to an increase in contractor, rent, stock-based
compensation, travel, computer maintenance and support of $580 , $489 , $343 ,
$263 , and $241 , respectively. The remaining increase was due to various other
expenses that, in aggregate, increased by approximately $50 .
General and Administrative. In the six months ended June 30, 2022 , general and
administrative increased by $2.2 million or 15%, compared to the six months
ended June 30, 2021 primarily due to increases in employee-related, stock-based
compensation, and recruiting and relocation expenses of $991 , $845 ,and $231 ,
respectively. The remaining increase was due to various other expenses that, in
aggregate, increased by approximately $100 .
Merger-Related. In the six months ended June 30, 2022 , merger-related expenses
increased $492.0 due to costs incurred in connection with the Wicket Acquisition
in 2022.
Other (benefit) expense. On
Transition Agreement that was entered into by the previous CEO and the Company
in
compensation through
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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 recognized as ofMarch 28, 2022 . The total expense of$1.1 million also reflects$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,$0.8 million remains unpaid as ofJune 30, 2022 and is reflected in Accrued Expenses on the Company's Condensed Consolidated Balance Sheets. OnMarch 27, 2020 , in response to the COVID-19 pandemic, theU.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act, which was amended by the Consolidated Appropriations Act in December of 2020 (the "CARES Act"). The CARES Act provides numerous tax provisions and other stimulus measures, including the creation of certain employee retention credits. In the first quarter of 2021, we recognized a benefit of$1,965 from the CARES Act related to employee retention credits. The benefit was recorded as Other (benefit) expense.
Liquidity and Capital Resources
Cash and cash equivalents.
Our cash and cash equivalents atJune 30, 2022 were held for working capital purposes and were invested primarily in cash. We do not enter into investments for trading or speculative purposes. AtJune 30, 2022 andDecember 31, 2021 , we had$13.0 million and$13.8 million , respectively, of cash and cash equivalents held by subsidiaries in international locations, including subsidiaries located inJapan and theUnited Kingdom . These earnings can be repatriated tothe United States tax-free but could still be subject to foreign withholding taxes. OnFebruary 1, 2022 , we acquired 100% of the outstanding shares ofWicket Labs , in exchange for 212,507 unregistered shares of our common stock valued at approximately$2 million and approximately$13.2 million in cash. 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. 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.
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