Q2 2016 Earnings Conference Call
July 28, 2016 17:00 ET
Brian Denyeau - ICR
David Mendels - CEO
Kevin Rhodes - EVP & CFO
Tom Roderick - Stifel
Steve Frankel - Dougherty & Company
Glen Mattson - Ladenburg Thalmann
Sameet Sinha - B.Riley & Company
Greetings, and welcome to the Brightcove Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I'd now like to turn the conference over to your host, Brian Denyeau from ICR. Please go ahead.
Good afternoon, and welcome to Brightcove's second quarter 2016 earnings call. Today we'll be discussing the results announced in our press release issued after the market closed today. With me on the call today are David Mendels, Brightcove's Chief Executive Officer; and Kevin Rhodes, Brightcove's Chief Financial Officer.
During the call, we will make statements related to our business that may be considered forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for the third fiscal quarter of 2016 and the full year of 2016; the deployment of our product and functionality, industry and market trends, expected profitability, our go-to-market and growth strategy, our ability to expand our leadership position, our ability to maintain an upsell existing customers, and our ability to acquire new customers.
Forward-looking statements may often be identified with words such as we expect, we anticipate, upcoming or similar indications of future expectations. These statements reflect our views only as of today, and should not be reflected upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in the most recently filed Annual Report on Form 10-K and as updated by our other SEC filings.
Also during the course of today's call, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after market closed today, which can be found on our website at www.brightcove.com.
In terms of the agenda for today's call, David will provide a summary review of our financial results and market opportunity, as well as an update on our operations. Kevin will then finish with additional details regarding our second quarter 2016 results, as well as our guidance for the third quarter and full year 2016.
With that, let me turn the call over to David.
Thanks, Brian, and thanks to all of you for joining us today. We are pleased to announce that Brightcove delivered strong second quarter results that demonstrate continued positive momentum across our business.
Over the last twelve months we've made strategic investments in our product portfolio, added new sales hires. The second quarter was a great validation of the hard work we've undertaking to significantly improve and broaden our product capabilities for our customers. Our positive market momentum is driving exciting customer wins and as one example, we're proud to announce that we signed in this quarter our largest deal ever, a multi-year eight-figure deal with a large Japanese media company.
During the quarter we also saw signs of improvement in our Europe, Middle East and Africa sales performance. There is still more work to get the EMEA region to where we wanted to be but second quarter performance gives us confidence that we're on the right track. Based on our first half results and the encouraging trends we're seeing in the business, we're again raising our full year revenue guidance for 2016. We remain confident in our ability to deliver on our move mid-teens full year bookings growth target.
Looking at our results for the quarter. Total revenue was $37 thirty seven million, up 13% year-over-year and well ahead of our guidance. Adjusted EBITDA was $885,000 with non-GAAP loss from operations of $302,000 and non-GAAP net loss income per diluted share of $0.01 all of which were in line with our guidance.
I'd like to take a few minutes to review the progress we're making across each of our target markets starting with our media business. We had a great quarter in the media sector. In the quarter we signed separate multi-year multi-million dollar agreements with two large Japanese media companies including one that has a total committed value of more than $10 million over 3.5 year period. These and other exciting customer wins demonstrate the great success we're having in this growing region.
The changing landscape of consumer viewing habits and new business models are driving tremendous disruption in the market. Media companies of all five recommend that OT offerings like Netflix, creating the future of television. And that they need a strategy to compete. At Brightcove, our focus is on delivering an unmatched breath of our ROI driven solutions for media companies to help them drive in the changing market. We recently received strong validation that our OTT service is at quality on par or better than the best known OTT offerings in the world. When Consumer Reports rated ACORN TV, Brightcove customer as the number one OTT service in North America.
At the same time we see a significant opportunity to also provide the middle of the market with world-class OTT solutions that are easy to use and affordable. The reason launch of our OTT flow solution which is a turnkey solution that enables a content provider to deliver a multi-platform OTT service quickly and it's great fit for the customers. Initial customer reaction has been very positive and we have signed our first deal in the first month following the launch. One of our recent OTT for people customers, it's TV Rama [ph] which is creating a new OTT destination for Korean movies and television shows in Latin America. This deal is a great example of how large and varied the OTT marketplace is becoming.
Additional examples of the success we saw in the media sector in the second quarter our new or expanded agreements with customers such as AMC, Bounce TV, Fox Plus, Express Newspapers, Le Parisien, Pluto TV, Ringier AG, TV Dorama, TV5Monde Asia, Woven Digital and Yelp among others.
Pluto T.V. is an interesting new customer. Pluto TV offers a free linear Internet television service with over 100 ad-supported channels such as NBC News, Bloomberg, CNET, IGN, Pop Sugar and The Onion. If business model requires it to ingest a tremendous amount of content from numerous partners in order to provide linear TV offerings. Pluto TV is switching to Brightcove Zencoder to be a transcoding engine for all of its VOD content. This is a great example of how our modular product strategy opening up exciting customer opportunities that we would not have been able to win with an end and monolithic suite approach.
Turning to our digital marketing business; we had the strongest quarter since the formation of our digital marketing business unit at the end of 2014. The steps we've taken to enhance our products capabilities, optimizer our go-to-market messaging, and build out the sales organization, particularly North America is driving great results in this business and we believe we are in the early stages of penetrating this huge untapped market. One of our key areas of focus is on building and expanding ecosystem of partners and technology integrations that place Brightcove as a video platform of choice for customers who are deploying next-generation digital marketing stack.
We've made great progress in this area with our Eloqua and Marketo partnerships, and we are continuing to expand the ecosystem with a new cycle integration that we announced during the second quarter. A great example of the value of our expanded ecosystem is our win with Zero, a leading provider of cloud-based accounting software for the SMB market. Our integrations with Marketo salesforce and Dolby experienced manager, and the confidence Zero had that it could scale with us overtime were the key differentiators in this competitive sales cycle.
During the second quarter we signed new and expanded deals with the range of industry-leading brands in our digital marketing and enterprise business including Angie's List, Comodo, Jardine Matheson, Keurig Green Mountain, Lush Cosmetics, Morningstar, Omron, Rolls Royce, SAS, TUI Group, Under Armer [ph] and Xero, among others. Angie's List is a new customer that's focused on increasing its library of how to videos and other content to both a subscriber base and the general public as a way to drive greater customer engagement with its website. Angie's List selected Brightcove and will be deploying gallery, and our new player to replace the legacy homegrown video solutions.
The ease of use of gallery, the fast time to value and getting a branded portal live, and a great experience members of the Angie's List team have had with Brightcove and prior companies were all clear differentiators. Keurig Green Mountain choose Brightcove gallery to address a customer support challenge without adding headcount. Gallery enabled Keurig to leverage the power of video to write high quality self-service support to their consumer customers. This is a great example of how marketers are using video to enhance the customer experience in a cost effective way.
During the quarter we also hosted our most successful player user conference ever which was a sold out event with double the number of registered attendees of the prior year. We introduced many exciting new products and previewed our product roadmap. Three of the announcements were most excited about addressed major trends in video in the areas of OTT as discussed earlier, delivery of content across a growing array of platforms, and social media distribution.
Project Radio which we previewed at play and is currently in Beta in a single mission control dashboard that allows customers to manage their video distribution across social media platforms including Facebook, Twitter and YouTube. Through this new dashboard users will be able to control scheduling, inter call to action, clip and edit videos, and analyze viewership across videos on social media platforms as well as on their own property. This is a natural extension to video cloud capabilities and we are encouraged by the early positive feedback we've received from the many customers participating in the beta program.
We announced a number of other exciting products that have either just hit the market but will be launched in the coming months. For example, we recently launched a video content marketplace powered by Vemba, a next-generation video distribution and content discovery platform for premium publishers. The Vemba marketplace is integrated within Brightcove's video cloud which helps expand content libraries and create new revenue opportunities for media companies. We also partnered with IRIS TV to license its adaptive stream technology which will enable Brightcove customers to provide personalized programming to their viewers through content discovery and recommendations. I've never felt better about our product offerings and our market leadership.
To summarize, Brightcove delivered strong second quarter results that reflect our momentum in the market. Our much improved product offering and go-to-market messaging is working and we are well positioned to generate accelerating revenue growth and profitability overtime.
With that let me turn the call over to Kevin to walk you through the numbers.
Thank you, David and good afternoon everyone. The second quarter demonstrates our ability to execute well on our plan to drive faster revenue growth and build upon the recent success in creating powerful and innovative products for our market.
Let's start by reviewing our second quarter results and then I'll finish with our outlook for the third quarter and the rest of the year. As David mentioned, we delivered strong second quarter results. Our total revenue in the second quarter was $37 million, a 13% increase from the second quarter of 2015 and above the high-end of our guidance range of $36.3 million. Breaking down revenue further, our subscription and support revenue of $35.1 million was up 10% year-over-year and professional services revenue for the quarter was $1.9 million, up 102% year-over-year.
Now let me add some color around our revenue mix. In the second quarter, our premium offerings generated 95% of our total revenue while our volume offerings generated 5% of total revenue. On a geographic basis, we generated 61% of our revenue in North America and 39% internationally during the quarter. Breaking down our international little bit more; Europe generated 17% of our revenue, and Japan and Asia Pac generated their remaining 22% of revenue during the quarter. From a vertical perspective, our media business represented 51% of our revenue in the quarter, and our digital marketing and enterprise business generated the remaining 49% of our revenue.
Let me now turn to the supplemental metrics that we offer on a quarterly basis. Our reoccurring dollar retention rate in the second quarter was 95%. This is the fourth quarter in a row that we've delivered a retention rate at the high-end of our target range of the low to mid-90s. To improved retention rate reflects solid sales and operational execution, as well as the value that Brightcove is delivering to its customers.
Looking at our customer count we ended the second quarter with 4,774 customers of which 1,926 were classified as premium customers. Our average revenue per premium customer was $69,000 which is up 8% year-over-year. On a GAAP basis, gross profit was $23.5 million, operating loss was $2.2 million, and loss per share was $0.07 in the quarter.
Turning to our non-GAAP results, gross profit in the second quarter was $24.1 million, up from $21.9 million in the year ago period, and represented a gross profit margin of 65%. Subscription and support revenue represented approximately 95% of our total revenue and generated 68% gross margin in the quarter. Professional Services margins were $134,000 positive or 7% of revenue in the quarter. Non-GAAP loss from operations was $302,000 in the second quarter compared to a loss of $964,000 in the second quarter of 2015, and was in line with our guidance range of breakeven to a loss of $500,000.
Adjusted EBITDA was $885,000 up 43% from the year ago period and was also in line with our guidance range. As David noted earlier we had a strong sales activity and bookings during the second quarter. This drove higher commission expense, which is largely accrued in the quarter of deal is signed. In addition Q2 is our biggest quarter in terms of customer facing events. Including our annual user conference play, NAV and oracle modern marketer experience which drove higher sales and marketing expenses well. The way of example on a combined basis, sales and marketing expenses related to the specific activities, was up by more than $800,000 on a sequential basis.
Non-GAAP loss per diluted share with a penny based on 32.8 million weighted average shares outstanding. And in line with our guidance range of a loss of $0.03 to break even per share. This compares to a loss per share of $0.04 on $32.5 million weighted average shares and the year ago period.
Turning to the balance sheet and cash flow. We generated strong cash flow in the quarter. And in the quarter with cash and cash equivalents at $30.2 million which is an increase of $9 million in cash as compared to the prior year quarter. During the second quarter we generated $2 million in cash flow from operations. With $1 million of capital expenditures and capitalize internal use software, we generate free cash flow of $1 million for the quarter. A significant improvement from negative $1.6 million of free cash flow in the year ago period.
I'd now like to finish by providing our business outlook for the third quarter and full year 2016. For the third quarter we are expecting revenue to be in a range of $37 million to $37.5 million, including approximately $1.6 million of professional services revenue. For probability perspective we expect non-GAAP operating income of $800,000 to $1.3 million for the third quarter. Non-GAAP net income per share is expected to be in a range of one penny to $0.03 Based on $34.9 million weighted average shares outstanding.
Adjusted EBITDA expected to be in a range of $2 million to $2.5 million in the quarter. For the full year 2016 we are raising our revenue guidance to be in a range of $148.3 million to $149.3 million. Which were -- it represents your-over-your growth of 10% to 11%. Included in this range professional services revenue is expected to be $6.5 million to $7 million for the full year. Remain on track to deliver mid-team stockings growth in 2016 as well. In terms of profitability our non-GAAP operating income is expected to be in a range of $2.3 million to $3.8 million. An increase of $300,000 over our previous guidance. And adjusted EBITDA is expected to be in a range of $8 million to $9.5million. In addition we expect non-GAAP net income per share to be $0.05 to $0.08 based on $34.3 million weighted average shares outstanding.
And lastly, we are raising the bottom end estimate of free cash flow by $500,000. Our new free cash flow range is expected to be $5.5 million to $7 million for the full year. In summary we are very pleased with the second quarter performance. From both the financial and operational perspective, we are executing well against our strategy and are realizing the benefit of significant positive changes that we've made to the business in the past year. We are well positioned to build on this success, to drive more top line growth and profitability. Which we're confident will deliver enhance shareholder value over the long term.
And with that would now like to open up the call for questions. Operator we are ready to begin Q&A.
Thank you [Operator Instructions] Our first question comes from Tom Roderick from Stifel.
Thanks for taking my questions, congratulations on another nice quarter particularly on the big media bookings here and in Japan. So that one of the things that jumped out in attending your user conference was just how much you guys have invested in the back end architecture and infrastructure in the past several years and that I think you guys did that somewhat relatively quietly as a public company. I I'd love it if you could talk a little bit about just exactly what you've done with the core of the service itself and how that may be playing into your ability to win some of these larger deals and compete more effectively with some these bigger media entities here winning at this point?
Sure. Well, first off thank you for joining us today and it's great to have you on the call, it is a great quarter, and it's going to have a chance to chat with everyone here. Thanks for the question by the way it does play into you know pretty big themes of what we've been focused on here as a company for several years now, and we got started so many calls in the past, we really went through a process got in you know we're going back three years now where we look at the overall architecture that we had, and if you remember we started building this project in 2004, in 2004 the ecosystem and the technology that we have available to us is very different we have today, so for example we built our own data centers we built a lot of things from scratch and we sort of grew that organically over time and very quickly because we go very fast, in that first period from zero to $100 million and lots of customers. And so you build really like fast and at some point you start to slow down because you're building the plane, and flying the plane at the same time.
So we made a very conservative investment a few years ago to modernize that back end into the product as well as a player of course. And we started to migrate everything to the public cloud architecture, we use both the Amazon cloud and the Google cloud technologies, we do it and distributed fast around the world we re-architected the software to be highly modular. And that enabled us to bring new products to market much more easily and much more quickly so the benefits have been many folds, the profit is faster and more stable, it's more flexible and then we have new-go to market options with the modular play, so that instead of having sort of a one size fits all approach, we can sell the right product at the right customer. And then from internal perspective there's an added benefit of engineering velocity in that instead of spending a lot of time kind of maintaining an old architecture out when you get to build clean code in software you can move faster you can innovate more quickly, and so we're in that period right now and if you look over the last couple years gallery and audience and break of left and break of new player and the break of new studio. You’ve just seen a much up in accelerating cadence of us delivering new innovations in the market, as it’s actually no doubt that that is one of the reasons that were selling how growth and we're winning customers.
Great. And Kevin, financial question for you just on the backing of that, as you win some of these big media properties that have historically we've seen that list in professional services right up front and then 2 3 4 quarters out that's when we started to see the lift and subscription, is that how they should play out in and it does that sort of a line us towards that goal toward sustainably being in double digits and maybe even kind of to get back towards better than that as far as revenue accelerating as we look at the 2017?
It's great question Tom, it's interesting because when you look at the two big Japanese deals with in the quarter, one had professional services associated with that and we did see a word of it of a trend of the professional services before us getting this really big deal, the other one didn't and so we see professional services still as a department within the company that we can use to leverage you know our expertise and our capabilities to go into a customer and strategically help them grow their video business, but by the same token it's not always the case, sometimes in other cases where we've got other big deals there's a professional services involvement whatsoever, so we will still see professional services involvement across the board but it's not something that you can absolutely tie to these types of big deal. I think to David's point earlier that the core underlying infrastructure of the business and the better products that we deliver to the marketplace over the last 12 months or so is really what is allowing us to get more momentum in the marketplace.
Let me add one point there if I may, Tom just might be helpful which is in terms of growth rates we're not guiding 2017 today as you can imagine of we'll get to that we get to that, but what we talked about this year in order to give you a little bit of visibility if this idea of being on track for mid-teens bookings growth, and we still are on track for mid-teens bookings growth. And this is part of that, and so certainly we are continue to focus on driving growth with profitability, continuing to accelerate the growth rate from what we see today up into the mid-teens is the first step. Where we get to the second step will get to that later we are getting guidance 2017 see if we are ready to do that or not.
Right perfect I’ll jump back in que, thank you guys very much appreciate it.
Thank you, your next question comes from Steve Frankel with Dougherty & Company.
Good afternoon and congratulations on the progress you're making, on these two large Japanese deals I wonder if you might give us a little more detail perhaps were you replacing another OVP or these DIY solution and then and maybe what these customers are planning to Do with your platform?
In both places we are for the most part replacing DIY solutions. One of those customers had used one of our competitors once but not materially as primarily replacing DIY of the Vox media companies at some point I expect we'll have us be able to talk about this a great deal of give you a great deal of color, but both of these companies have to give you launch plans for what they're doing with their business, and I don't want to be in a position of trying to announce someone else's business, so will say that so until they until they’re lives and hopefully will have the ability to talk to you about this more at the right point. They are two different media companies OTT services as well as a range of ad supported use cases both short form and long form, you'll see very sophisticated high quality video delivery service that it rivals the best of anything you've seen anywhere in the world.
Great if you look to the back half of the year in your deal pipeline. Maybe you could characterize elephants verses deer and jaguar wherever animals you want to use are there, are there more of these and what we would consider monster deals are or did you kind of bag those and now it's back to more typical bright clothes deal sizes in the back after the year?
I don't -- I want to be careful not to get too specific there because we don't we don’t want to add too much color to the guidance, so the guidance still very good about it there are big deal and medium deals and small deals in the pipe. The really large deals we've got a number and will continue to do on, but they are lumpy and one of things we've learned over the years, is I can get yourself in trouble like by trying to be too precise about with quarterly you are landing, because companies take a while to land on their business strategies as well. So we have all three kinds if you will I we've got that we got mammoths ,we've got jaguar, we’ve got mice I don't know if that's the right term. we got all over a wide range of deals, clearly that deals of that size are going to be lumpy and come periodically but you know we mentioned last quarter another very significant deal, not necessarily of this quite the same size but with the top 10 U.S. broadcaster and so we definitely see that there is enough opportunities in the world to continue to do large deals and that'll be a key part of our goal strategy.
If you had two more quick ones that maybe an update on the speaking of smaller deals on your starter pack strategy and then what were over-ges in the quarter?
Okay, great -- on the starter pack we are off to a good start, we don't have a huge update for you now if we told you last quarter, the first quarter two is a little bit of a beta phase where doing a lot of casting in the market but it's not yet publicly available through a self-service fine process on the website, and I could take some work of infrastructure and payments and all that stuff that has to get done, so I'll get rolled out somewhere the middle the second half. And will feel more exploration and well little more visibility on trends are going to be. For now we've got real good feedback, we closed a bunch of deals. We think they are the right kind of customers that's important -- It's important to us that we don't even vertically slip back into it an FMB target business which is what we had 3/4/5 years ago with Express.
We really want to target medium to large enterprises that can eventually be larger customers and use it as an entry point. So far our data which is not very large scale but the data we have is -- we're getting the right kind of customers, we're bringing them in the door and I think that they will then be long-term costumers that we can grow and that's very much a strategy. So lot more to say about that -- I think by the end of the year as we roll out a more aggressive promotional strategy.
Thanks, Kevin. In terms of averages, just a couple things; number one, in the first quarter it was $2.6 million, and to frame that in terms of history -- last year in 2015 we ranged roughly from $2.1 million to $2.4 million now throughout the four quarters.
I'm sorry, the $2.6 million in Q2 or that was -- I think you just said Q1.
Q2 -- I'm sorry, $2.6 million in Q2, $2.1 million to $2.4 million was the range Q1 to Q4 last year.
Perfect. Thank you very much.
Thank you. Our next question comes from Glen Mattson from Ladenburg Thalmann.
Hi, perhaps Kevin could you just talk a little bit about gross margins -- maybe on the license side; second quarter rode just a hair lower than it had been most of last year and then kind of -- in my model I have a trend to back up, you talked about just the dynamics driving it, currently and what do you expect going forward?
Sure Glen, good to hear you. In terms of margins, one of the things that we have to realize is that our revenue for our business is ratable, and so you take that revenue very evenly over the contract term whether that's a year or two or three. But the usage and the costs associated with that usage are not ratable necessarily it's based on the usage for each one of our customers. And what we found here in Q1 and it's the same thing in Q2 is that we had some customers that were using higher amounts of our platform and bandwidth and some of the usage of the business in the first and second quarter of the year which drove higher costs for us which obviously decreased our margins a bit. We think that those will come back over time.
Okay, great, that's helpful. And maybe -- David, you wanted to talk a little more about -- you said you were excited about the marketing side of the business, best quarter I think since the end of 2014. Would you said -- maybe a little bit more about what's driving that? Is there just increased activity out there or people are more responding to the integrations you've made with some of your partners?
It's an old evolve story, we feel very good about it. We think that we're still in the early stages of a very large market opportunity that -- just as companies have invested in other aspects of digital marketing from web, and e-commerce, personal [ph] to email marketing, to campaign management, to analytics that video marketing is a fundamental part of the future marketing stack if you will. And so I think we've done a good job in telling that story and more companies are getting their heads around that and understanding that. I think we have added value to the -- so I think -- so fundamentally I think there is a demand opportunity where customers are more interested, they are seeing the value of video.
And then secondly, on our side I think the combination of the work we've done, starting a couple years ago with the video marketing suite, the gallery products which we've been able to advance pretty significantly over several years now and we're seeing a lot of adoption, the breakup audience product which is how we integrate with companies like Marketo and Eloqua and those partnerships. The CMS integrations we announced last quarter, and integration with SICOR [ph] and that's an important part of the strategy as well. And so all these things are coming together to combine with increased market opportunity, demand and then a better value proposition, better messaging and better execution on our side and in addition we added sales people. So we're going to keep driving this as we ramp those sales people up. I think there is a nice opportunity.
Thanks. And the competitive landscape on both businesses, any significant change there?
I think that the high level story is the same in that, it's a complex fragmented market where we feel like we have a good leadership position but in a market that remains early and fragmented -- on the media side, we compete with a very wide range of companies and there is no one competitor that we compete with in the majority of our deals or even 20%, 30% percent of our deals, it's very fragmented. We see fragmentation from a geographic perspective but also from a type of customer perspective, big broadcasters versus publishers, versus pure play digital companies. And so we feel like we're in a strong position, I don't think there is a very material change in that regard.
And on digital marketing, it's a smallest set of competitors but I think it's similar, we're a strong position and it's actually -- the competitive landscapes are little bit cleaner and easier to navigate. I think we're in a more definitively strong position on that side of the house, just because it's a newer space and we're leaning it.
Great. Thanks for the color.
Thank you. Our next question comes from Sameet Sinha from B.Riley.
Yes, thank you very much. Kevin, just one question; in terms of the gross margin, you spoke about how sometimes usage is higher with revenue recognition. Do you think at some point they -- it catches up and the two come together and margin start to go up or do you think with your deal signing velocity you will see usage much more than revenue recognition for a period of time. Secondly, you're not raising EBITDA margin or EBITDA guidance while the revenue number seems to go up; are you planning to invest more as we go along or -- basically I'm trying to figure out are these investment plans what you announced in Q1, I'm sorry when you reported the fourth quarter numbers., or is the kind of the same it's just that you're being conservative and not the -- If you could talk about over how much look in the quarter?
Alright so three questions in there around margins profitability over just so leverages how you may not have been on the call earlier I said that earlier $2.6 million is what we had in the second quarter and then I said the other range last year in 2015 was $2.1 million to -- that on the gross profit margin side there's a couple things when you think about margins in general for the full company we -- that is actually been impacted about 150 basis points year-over-year just from a professional services mix. As we've driven more professional services ahead of some of these larger you know deals that we've just done, the set a lower margin rates in our software business. So you see that natural kind of decline of perfect -- of margins overall for the business with that then coupled -- that coupled with the higher usage in the earlier part of this year versus the revenue being recognized over a 12 month period is kind of the other explanation, as I said earlier it should step back over time, the goal for us as a company to continue to look for leverage and gross margin wine you know over time as we know trying get more, more profitable, that ensures that first question.
As you talk about leverage on the bottom line there is a couple things here number one, we did raise our guidance on the non-GAAP operating income that's up $300,000 in both the bottom line in the top line we don't have as much depreciation and amortization we 34 4xpected this year, and so that's why we remaining a bit flat on the EBITDA side of things, and then with regard to you know when we think about what's the leverage in the model you have to realize that we had some expenses here in Q2 that were a bit higher than we normally would have, for instance the commission on the big deal that we just had that wasn't really in our model but we did landed deals and so when we look at kind of the $800,000 of incremental expense that we had in Q2 and clearly that's a good problem for us to have. Higher expense related to larger booking this is a great position to be in.
Thank you. Your next question comes from [indiscernible].
Thanks guys for taking the question. I want to follow-up with David; in one of your comments around sales hiring, if we could just get and update as far as where you guys stand according to your plan on per sale hiring in the mix of aware is going either on the digital marketing or the media side?
We are right on plan and things go fine, certain number ahead with little more on the digital marketing side those had to be lower cost heads that you hire more of a you know some more actual business. less of the mega deals that you know what did you go after with the big elephant, he used the metaphor from earlier the call, so there's a number the wraps it's more than digital marking side but both are important and digital marketing in particular I think we are seeing [39:36] quite a few people and hitting our plan in North America it was a key investment area for us we feel very good about that, and then we are very good raise of key hires in international, in a number of our international regions for both digital marketing and for media. So across the board really from a regional perspective out of business unit perspective, we're right on plan numbers.
Got it. That's good color on it Kevin I guess a question I had on your year mid-teens bookings growth estimate you have for that for this year can you just extrapolate that number a bit in terms of that financial metrics that you give? Averages prescription revenue per customer and how that reflects also on your neck had activity for the remainder of the year kind of the next shift there?
We don't really guy in terms of customer account because that's hard to do guide to and we would just don’t know and frankly as David said earlier today even with a very, very strong bookings quarter some decent of our bookings came from existing customers. so the way that we look at either customer account for average revenue per customer those bookings yet having actually generate revenue as much as we would see in that our Q number and so from our -- from our perspective you know when we look at you know what we're going to achieve for the rest of the year here in terms of you know bookings and a color on the mid-teens bookings growth we feel like we are right on plans for the second half -- the first half of the year, we've got visibility to the second half of the year at this moment that gives us you know strong confident that we'll be able to achieve that goal, we did say we don't want to get into that quarter-by-quarter how would this quarter compared to the year ago quarter etcetera, we just said that we would give color where we are in any given quarter against that mid-teens bookings growth goal, and so that's I just want to clarify what we said there.
Okay, great, very helpful. Thanks again.
Thank you. That's all the questions we have at this time. I will turn the call back over to David Mendels for closing comments.
So thank you all for joining us today. We appreciate the time, and the questions, and the interest. We had a strong quarter and its good opportunity to catch up with everyone. We look forward to taking to you again in 90 day. So thanks very much.
Thank you. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you.
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