Brightcove Management Discusses Q3 2012 Results - Earnings Call Transcript

| About: Brightcove (BCOV)

Brightcove (NASDAQ:BCOV)

Q3 2012 Earnings Call

November 01, 2012 8:00 am ET


Brian Denyeau

Jeremy D. Allaire - Founder, Chairman and Chief Executive Officer

David Mendels - President, Chief Operating Officer and Director

Christopher Menard - Chief Financial Officer and Executive Vice President


Jennifer A. Swanson - Morgan Stanley, Research Division

Eric Lemus

Gur Talpaz - Stifel, Nicolaus & Co., Inc., Research Division

Steven B. Frankel - Dougherty & Company LLC, Research Division

Sameet Sinha - B. Riley & Co., LLC, Research Division

Robert P. Breza - RBC Capital Markets, LLC, Research Division


Greetings, and welcome to the Brightcove Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Brian Denyeau of ICR. Thank you. Mr. Denyeau, you may begin.

Brian Denyeau

Good morning, and welcome to Brightcove's Third Quarter 2012 Earnings Call. Here to discuss our third quarter performance today are Jeremy Allaire, Brightcove's Chairman and Chief Executive Officer; David Mendels, President and Chief Operating Officer; and Chris Menard, Brightcove's Chief Financial Officer.

Jeremy, David and Chris will be making a few comments, and then we'll open things up to your questions.

Now let me cover the Safe Harbor.

During the call, we will make statements related to our business that may be considered forward-looking, including statements concerning our financial guidance for the fourth fiscal quarter of 2012 and the full-year of 2012, our position to execute on our growth strategy, our ability to expand our leadership position and our ability to maintain existing and acquire new customers. These statements reflect our views only as of today and should not be seen as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For discussion of material risks and on other important factors that could affect our actual results, please refer to the more detailed discussions contained in our SEC filings, including our most recent quarterly report, particularly under the headline Risk Factors.

Also, during the course of today's call, we'll refer to certain non-GAAP financial measures. There's a reconciliation schedule showing GAAP versus non-GAAP results and guidelines currently available in our press release issued earlier this morning.

With that, let me turn the call over to Jeremy.

Jeremy D. Allaire

Thanks, Brian, and thanks to all of you for joining us today to review our third quarter results, which were highlighted by revenue of $22.1 million or growth of 32% on a year-over-year basis.

We were pleased that the company exceeded our guidance on both the top and bottom line, particularly considering the well-documented global economic challenges.

Since Brightcove was founded, our focus has been on enabling our customers to deliver compelling digital content to their customers, wherever and however they choose to consume it.

When we first launched Video Cloud in 2006, digital content was still largely viewed as a nice-to-have add-on to a traditional text-based webpage as to access from the desktop.

Since then, the market for digital content has been dramatically transformed, with the introduction and proliferation of new form factors, like the smartphones, tablets and Smart TVs, new operating systems like iOS, Android and Xbox, faster and more consistent broadband and mobile data connection and new ways of engaging content like app.

During this emerging technology environment, companies are increasingly realizing that having a holistic digital content delivery strategy is a necessity, if they want to improve the business performance further in greater brand awareness, customer engagement and loyalty.

This increased complexity is a tremendous opportunity for Brightcove, as customers recognize the challenges associated with managing digital content and related IT infrastructure and tools required to support their initiatives.

Organizations of all sizes and across vertical markets increasingly recognize that utilizing a third-party cloud content services provider, can enable them to more quickly and cost-effectively navigate today's rapidly changing technology landscape.

We believe companies are only at the very early stages of adopting solutions to manage and distribute their digital content in order to fundamentally change the way they engage with their customers.

With Video Cloud, App Cloud, and now with our recently acquired Zencoder encoding services, we believe that Brightcove has, by far, the most complete and innovative set of solutions in the market. We're starting to see customers appreciate the meaningful synergies that have help sewing our suite of solutions together can bring.

Another validation in the market of Brightcove's superior offering was our recent win with Viacom, who has adopted Brightcove's cloud services for digital content delivery across platforms with consumer devices. Viacom will be using Brightcove's player technology for multiple properties for web and mobile distribution, as well as our native players, iOS, Android and Xbox.

With Brightcove, Viacom will be able to reliably monetize and measure digital content distribution across devices, regardless of operating system, browser or form factor. Brightcove has also enabled Viacom to sell key challenges, associated with cross-platform, authentication, content protection and closed captioning.

Another great example is Discovery International, an existing video cloud customer that recently became the first customer to adapt our new App Cloud dual screen solution to Apple TV. Discovery's DMAX property in Italy will be releasing a catch-up TV app for iPhone and iPad, that allows viewers to watch episodes of past and current seasons of Discovery programs such as Dirty Jobs and LA Ink, in connection with an Apple TV-enabled HDTV.

Viewers will use their iPhone or iPad to control and display the video stream on their television screen via their Apple TV, while simultaneously browsing active bios, episode recaps, images and more on the screen of their phone or tablet.

We believe that this model of dual-screen TV apps, that put smartphones and tablets in control of the television experience is going to become increasingly compelling for both consumers or publishers.

We're also very excited about the early results we're seeing with Zencoder. Costumers' reactions to Brightcove's acquisition of Zencoder has been extremely positive, and we're already seeing meaningful sales, including a 6-figure transaction that we closed during the quarter.

We recently announced 2 new product releases from Zencoder that we expect to be well-received as they address specific pain points for customers. The first one is the Zencoder Live Transcoding service; the first cloud transcoding service that enables streaming of live events to multiple screens using adaptive bit rate screens.

Currently, if a customer wants to publish live video, they must make significant investments in on-premise hardware and encoding technology and dedicated personnel to manage the process. This costly process is inherently inefficient and slow. With Zencoder Live Transcoding service, content providers send a single live stream to the Zencoder Cloud Transcoding service, which automatically encodes and packages the content for any device and in multiple bit rates.

The second product innovation is called Zencoder Instant Play, which allows on-demand playback, seconds after the video uploading process begins. This innovative solution will greatly increase the ability of publishers to push time-sensitive content like sports highlight or breaking news, as the transcoding process is occurring in real time that the file is being uploaded.

Both of these products are currently in beta and will be publicly available in the fourth quarter or early next year. This is technology that customers have been asking for years, and Brightcove is, again, leading the industry from an innovation perspective.

Both of these products are currently in beta and will be publicly available in the fourth quarter or early next year. This is technology that customers have been seeking for years, and Brightcove is, again, leading the industry from an innovation perspective.

David will detail some of our other recent product announcements in a moment, but it is clear to us that we are in very early stages of a fundamental shift in how content is being consumed and how companies will look to deliver that content to their customers.

We view this as a significant market opportunity, and we'll focus on leveraging our first-mover advantage into continued long-term market leadership.

With that, let me now turn the call over to our President and Chief Operating Officer, David Mendels. David?

David Mendels

Thanks, Jeremy. I'd like to take a few minutes to review some of the highlights in the third quarter, as well as some additional recent product announcements.

In the third quarter, we continued to expand our customer base, and leave the third quarter with 6,143 customers, which includes about 1,130 customers that we acquired as part of the Zencoder acquisition. Excluding Zencoder, our customer base increased 38% year-over-year.

Going forward, we will report the details of our customer count as follows: A new category called Volume will replace Express, and will include Video Cloud Express customers, the professional edition of App Cloud, and all month-to-month and pay-as-you-go Zencoder customers. Our Premium customers will now receive our traditional Premium Video Cloud customers, the Enterprise edition of App Cloud, and Zencoder customers who are on annual contracts.

On this basis, we had 4,570 Volume customers at the end of the third quarter, an increase of 1,370, of which approximately 1,120 related to Zencoder. In addition, we had 1,573 Premium customers, an increase of 76 customers over Q2, of which approximately 10 related to Zencoder.

As we continue to grow in our successful cross-selling in our suite of products, it will become more and more difficult to match each customer to a specific product family.

While our overall customer activity was solid in the quarter, our Premium net adds were down from last quarter, due primarily to the fact that we had a transition in a few direct sales roles.

We have already filled most of these open positions, and our new reps are currently on the path to productivity.

We are also making additional hires in our field sales organization to build out a vertically focused media sales team, that is dedicated to increasing our penetration among large media organizations.

We are very excited about this opportunity, and think it could be a good opportunity for us as we move forward into 2013.

During the third quarter, we sold our solutions to new customers across numerous industries and verticals, such as Exact Target, Nikon, [indiscernible] Japan, All Nippon Air, Yves St. Laurent, and the Asian division of Microsoft online.

We are also continuing to see strong upsell activity in our customer base. For example, last quarter, we expanded our relationship with Hallmark, moving beyond our existing relationship with their digital team to include the Hallmark corporate communications team.

Hallmark Digital continues to use Brightcove Video Cloud for their publication product, including Facebook that has now upgraded. The upgrade was needed to accommodate Hallmark corporate communications wanting to use Brightcove for their internal communications, including an integration with their internal Microsoft SharePoint website.

Another example of an upgrade in the quarter was EMC. EMC uses Brightcove Video Cloud for their live streaming and on-demand content channel, EMC TV. Most recently, the EMC marketing team broadcasted live at the grand opening of their Durham Center of Excellence. Brightcove Video Cloud was their chosen technology to deliver a full 4 hours of EMC TV programming, beginning with a 2-hour preshow and finishing up with the live post-event review.

Both of these examples illustrate an important component of our overall growth strategy and a great validation of the value our customers derive from our solution.

In addition, on a year-to-date basis, we've had about 120 customers who have upgraded from Express to Premium, including Abbott Labs and Stanford University in the third quarter.

This total almost equal to the number of upgrades Brightcove signed for the full year of 2011.

In addition to the product announcements Jeremy discussed, there are additional product innovations that Brightcove has delivered in recent months. A great example of this is our recent release of our new captioning solution. At the end of September, new U.S. Federal Communications Commission regulation came into effect that required captioned programs shown on TV in the United States to also include captions if it's delivered over the Internet.

We have supported captioning for many years, but we also rolled out several new enhancements to make it even easier for our Video Cloud customers to comply with the new regulations. These enhancements included streamline workflow for managing caption data, significant updates for the caption display capabilities for our flash and HTML5 video players, and users experience improvements to bring the consumers experience with online video caption up to parity with the captions consumers see on TV.

We've also released a completely new video player for iOS. As customer demand for video and mobile apps continues to grow, their requirements have become more sophisticated and demanding. The new iOS video player implements the latest technology, for efficiently delivering unmatched playback quality in video advertising studio-proof content protection and real-time analytics and user views.

We developed this in close collaboration with major media customer, and their feedback on our new player has been outstanding.

We are also developing an Android player, with the same architecture. And both of these new player frameworks will find their way into the App Cloud in the near future, helping to file our tablet and TV apps for premium video content.

The enhanced loop to our captioning solution and the iOS video player are just 2 examples of how fast the digital content landscape is changing and the challenges that it presents to a company looking to generate business value from their content.

Over the course of the past year, we've dramatically increased the breadth and scope of our product offering, as we move from a single product company to almost multiple integrated offerings, as well as standalone developer APIs and tools.

We think our product -- our broader product footprint uniquely positions Brightcove to be the strategic vendor of choice in the cloud content services market.

With that, let me turn the call over to Chris to walk you through the numbers.

Christopher Menard

Thanks, David. As Jeremy mentioned, we are pleased with our third quarter revenue and operating results, which exceeded our guidance in both the top and bottom line.

For the third quarter, total revenue was $21.1 million (sic) [$22.1 million], a 32% increase from $16.7 million in the third quarter of 2011 and above our guidance of $21.1 million to $21.6 million.

Subscription and support revenue of $21.5 million, was up 35% year-over-year and drove the upside in the quarter. This was primarily due to the timing of new business, as well as overage fees, which were in the range of what we experienced during the last 2 quarters.

Professional Services and other revenue was $568,000 down from $767,000 in the third quarter of 2011.

Turning to revenue mix. Our premium offerings generated $20 million of total revenue, representing a 32% year-over-year increase, while our volume offerings generated $2.1 million in revenue, a 41% increase from the third quarter of 2011.

On a geographic basis, we generated $13.9 million of revenue in North America for the quarter, which was up 25% year-over-year and representing 63% of our total revenue.

Europe recorded $4.8 million, a 34% increase and 22% of total revenue, while Japan and Asia-Pac generated $3.4 million of revenue for the quarter, up 69% year-over-year and representing 15% of total revenue.

From the vertical perspective, non-media customers represent 62% of our revenues in the third quarter, and grew 44% on a year-over-year basis. While our media customers represent 38% of our revenue and grew at 16% on a year-over-year basis.

We continue to see a very broad, horizontal market opportunity and expect our industry mix to become increasingly diverse over time.

Our year-to-date average monthly video streams as of September 30 were 661 million. Excluding the impact of AOL as we've done throughout 2012, our average monthly video streams were up 15% on a year-over-year basis.

As we shared on each of our previous calls, video streams have not historically been a very good predictor of revenue and we do not expect them to be in the future.

Our recurring dollar retention rate was 97% for the quarter, up from 94% in a year-ago period. We had another strong quarter selling back into our installed base, which we believe is a positive indicator of the value customers are generating with our solutions.

We are pleased with the level of recurring dollar retention rate, but we'd remind investors it can have some variability quarter-to-quarter. Our target recurring dollar retention rate remains greater than 90%.

Moving down the P&L. Our non-GAAP gross profit in the third quarter was $15.3 million, a 34% increase from the year-ago and a gross margin of 69%. Subscription and support revenue represented approximately 97% of our total revenue, and had a 74% gross margin. While services revenue represent 3% of our total revenue and a negative 97% gross margin.

We expect our total gross margin to expand over time, given the inherent leverage of our lateral subscription model, in addition to improved services margins, as we've gained leverage from the organization.

Turning to non-GAAP operating expenses. Our sales and marketing expenses in the third quarter was $8.9 million or 40% of revenue, versus 43% of revenue in the third quarter of 2011. The absolute dollar growth in sales and marketing expense reflects the investments we are working -- we are making to build out our global sales footprint.

R&D expenses were $4.6 million or 21% of revenue, compared to 23% in the year-ago period. We will continue to invest meaningfully to extend our technology leadership position, but we do anticipate realizing additional economies of scale from R&D over time.

G&A expenses were $3.1 million or 14% of revenue, versus 16% in the third quarter of 2011. G&A expenses are higher on an absolute dollar basis due to significant cost associated with becoming a public company and the expansion of our global footprint.

Within G&A, we incurred $756,000 of transaction and retention cost, related to our acquisition of Zencoder, which we have excluded from our non-GAAP results.

Non-GAAP operating loss is $1.3 million in the third quarter, an improvement compared to our loss of $2.2 million in the third quarter of 2011 and better than our guidance of a non-GAAP operating loss of $2.8 million to $3.1 million.

Non-GAAP net loss per share was $0.05 based on 27.5 million weighted average shares outstanding, better than our guidance of a loss of $0.11 to $0.12 per share. This also compares to a per-share loss of $0.59 on 4.9 million weighted average shares in the year-ago period.

On a GAAP basis, our gross profit was $15.1 million, operating loss was $3.7 million and our net loss per share was $0.02.

Turning to the balance sheet. We ended the quarter with cash, cash equivalents and investments of $30.8 million, which was a decrease from $58.6 million on June 30.

The reduction in our cash balance is primarily a function of the $27.2 million of cash we paid as part of the Zencoder acquisition.

From a cash flow perspective, we used $5,000 in cash from operations and invested $1.4 million in capital expenditures during the quarter, which equates to a negative $1.4 million of free cash flow for the quarter. This compares to a negative $5.5 million in the year-ago period.

Our deferred revenue balance at quarter-end was $19.2 million, up 60% year-over-year. It's worth noting that none of the $3 million increase in deferred revenue from the end of the second quarter, related to the inclusion of the Zencoder-related business.

Finally, I'd like to provide our financial outlook for the fourth quarter and full-year 2012. For the fourth quarter, we're targeting revenue of $22.8 million to $23.3 million, or 23% to 26% growth on a year-over-year basis. This guidance assumes a level of overage fee that is a few hundred thousand dollars below what we've experienced in the last 3 quarters.

From a profitability perspective, we can -- we expect a non-GAAP operating loss of $1.9 million to $2.2 million for the fourth quarter. We expect a non-GAAP net loss per share of $0.07 to $0.08 based on 27.9 million weighted average shares outstanding.

For the full year, we are increasing our revenue guidance to $86.5 million to $87 million, which represents year-over-year growth of approximately 36%.

We are now targeting a non-GAAP operating loss of $7.5 million to $7.8 million, which represent a meaningful improvement from our prior guidance of a non-GAAP operating loss of $9.5 million to $10.5 million.

Non-GAAP net loss per share is now expected to be $0.35 to $0.36 for the full year 2012 based on 24.6 million weighted average shares outstanding, which is an improvement compared to our prior guidance of a non-GAAP net loss per share of $0.44 to $0.47.

We are projecting free cash flow of negative $9 million to $10 million for the full year, an improvement from our prior guidance of negative $10 million to $10.5 million.

In addition, we now expect to be cash flow positive in the fourth quarter, even after taking into consideration the dilutive impact from the acquisition of Zencoder.

In summary, we are pleased with our third quarter results, and we are optimistic about Brightcove's outlook for the remainder of the year.

Longer-term, we believe that Brightcove is well-positioned as the market leader.

Operator, we are now ready to begin the Q&A session.

Question-and-Answer Session


[Operator Instructions] Our first question is from the line of Jennifer Swanson Lowe of Morgan Stanley.

Jennifer A. Swanson - Morgan Stanley, Research Division

Okay. I guess, the first question I had was just drilling in a little bit on the mention of the sales changes in the Premium products set in Q3. Can you just give us a little more detail on what exactly the changes were? Why you decided to make those changes in Q3, and sort of what the expected outcome of those changes is? And then just refining on that, if those changes have been made, what are your assumptions in Q4 around any additional follow-on transition risk as people settle into new roles?

Jeremy D. Allaire

Sure. Happy to try and address that question. First of all, changes are relatively small. There was a couple of people where there are some attrition in the field sales organization. Overall, the sales organizations are stable, and as you know, a large part of our business comes from selling into our installed base, as well as our field sales organization which sells into new customers. And we had very strong results overall. But we did have a few people that we -- that attrited and that we have replaced. And with that, there is, to some degree, an impact on the new Premium adds of new customers. Although, overall, as I say, with our account management team and our sales into our existing customer base, we felt it was a very strong quarter. We have filled just about all the open positions around the world, so we're feeling very good about that. People are ramping up, and so we don't expect any continued long-term material impact from that change.

Jennifer A. Swanson - Morgan Stanley, Research Division

And just a follow up, I think you mentioned something briefly about some sales focused on the media segment or something. I didn't quite catch it. But was there something specific there that was new that we should be thinking about?

David Mendels

It's just a little bit of increased focus. It's not a huge change in resource allocation, but we had a team -- a senior individual that we promoted over the year to Vice President of Media and a very senior technical leader as well that work together on the large media accounts. And we have increased the size of that team and added additional resources that are focused on that vertical. As you know, historically, our core business has been very horizontal and continues to be. And the majority of our new customers come from outside of the media verticals, but we do have a lot of pretty large opportunities in the media vertical. So we are continuing to invest in building sort of specialized domain, knowledge, the relationship, et cetera by building out that team and continuing to strengthen that, because we have seen a lot of strength there.

Jeremy D. Allaire

Just to add to that, this is Jeremy. We've had a continued significant focus from our product investment perspective on the needs of Premium media and of large media. And I think, this -- this increased investment from a field capacity perspective is mirroring that product investment, and is also reflected in that recent win with Viacom, which is a strategic win for the company.

Jennifer A. Swanson - Morgan Stanley, Research Division

Great. And then this is actually to follow-up on that point, and my other question was, if you look at the growth between the media and the interactive marketing components of the business, the media growth has been a little slower. Do you think that's something that could accelerate as you put a little more focus on it? And then conversely, given some of macro volatility we're hearing about, it seems like the interactive marketing component has been growing very well for you. But are you -- what are you hearing from your customers in terms of their spending intentions? Are they still focused on marketing and video as a way to accomplish that? Or is there any change in tone there, just given some of the uncertainty out there?

David Mendels

So no change in tone there. I think that we're seeing from our customers in the non-media segment increased focus on video. People looking for more efficient way to engage their customers, digital and video are good ways to do that. So we feel very good about continued ongoing growth in the non-media sector. We do see strong for media sectors as well, and that's why we're continuing to invest from a sales perspective. Certainly, Viacom was a very nice win. Even in the -- a potentially rougher macroeconomic times and that differs, again, a little bit around the world. We tend to save people money. We are often replacing in-house systems or legacy systems that were complex and expensive or we are helping to make a shift from legacy media to digital, in terms of how they do their communication litigation with their customers. So often, when they adopt Brightcove, it's part of an overall strategy that's actually saving their money and making them more efficient, so that can be a very effective sale even in tough economic times.


Our next question is from the line of Terry Tillman of Raymond James.

Eric Lemus

This is Eric Lemus on for Terry. I guess my first question revolves around the Zencoder. What is the Volume -- what is the Volume customer and Premium customers look like in regards to Zencoder front, compared to a Video Cloud front? Is the ASP noticeably different? And which way do you price the software? Is that different? And is the type of customer totally different than the video platform customer?

Christopher Menard

So, this is Chris, good question. On the Volume side, there's a couple of different flavors of customers. We have customers who are pay-as-you-go, where they have individual jobs and they are being charged per minute, depending on the quality and the number of renditions that they need. And then we have people who have subscription month-to-month plans, which is very similar to our Legacy Express business or the Video Cloud Express business. Within Volume, overall, I think for the last quarter, on the Zencoder side, the average monthly revenue was about $150 per customer per month, which compares to about $180 to $185 for the Video Cloud. And in Premium, it's kind of all over the map, given that some customers on the Premium who are much larger than other ones. So I can't give you a good average revenue per customer. It's just not a very good sample size. It's only about 10 of those customers in total.

Jeremy D. Allaire

This is Jeremy, just to answer the second part -- or another part of the question, which was, I think, when you look at the target customer profile for Zencoder versus Video Cloud, there is certainly overlap in terms of these professional organizations that are trying to publish video in excess of capacity on their website. There are some areas in Zencoder that are distinct. They have quite a few, for example, user-generated content customers that are accepting user submissions of video and transcoding those that has not historically been a big focus for Video Cloud. But as we talked about, for us, the opportunity is to acquire these customers with Zencoder who are initially kind of do-it-yourself customers. They're using one building block for their overall video solution. And really, the opportunity becomes to up-sell and cross-sell them into a suite and additional modules and services that are represented in Video Cloud. And so we do anticipate, overall, that the target customers are quite synergistic.

Eric Lemus

Okay, great. And then how much were you guys effectively able to invest in sales and marketing on the Zencoder front in this particular quarter? I know it's early, but is that more of that in this quarter or Q4 or 2013? And it looks like you guys had a pretty strong amount of adds from Zencoder. Was that above you guys as expectations?

David Mendels

No. I think the overall net adds is in line with what our expectations were. Remember that a lot of those customers just come on board as we did the acquisition in the third quarter. And we've already worked to consolidate the sales function and the sales marketing teams. So I couldn't you give you the differential in the marketing and sales spend for what was Zencoder -- based versus, what I'm going to call, base or legacy business, because at this point, we've already integrated, we kind of act as a single unit or team.


Our next question is coming from the line of Tom Roderick of Stifel, Nicolaus.

Gur Talpaz - Stifel, Nicolaus & Co., Inc., Research Division

It's actually Gur Talpaz on for Tom. So following up on Zencoder, I was hoping you could talk about the progress you're making in integrating the technology into the other broader Video Cloud stack. And then also, Zencoder is a big user of cloud-based technologies. Going forward, do you see yourself being able to leverage that know-how for your other solutions?

David Mendels

Sure. So first question, the answer is things are going very well. We have key engineers and architects in the Zencoder team and in parts of the Video Cloud team working together very closely. You will, see over time -- and we already have some of this running in the lab, if you will, but you'll see, early next year, the Video Cloud product taking on features and functions of the Zencoder products. And we're going to be absorbing that in so that Video Cloud customers get the benefits of the performance, the quality, the features of Zencoder, as well as the stand-alone Zencoder customers. So that is going quite well. And we're very excited about it. On your second question, it's a great question. The answer is yes, there's benefits on both sides of the fence here. I think the Zencoder team does have good experience in leveraging things like the Amazon cloud, and using that for distributed transcoding around the world, for example, and for scaling and bursting and the like. And that is something that we have used also at Brightcove, with our App Cloud product for example. And what you'll see, going forward, is us pursuing a really hybrid strategy, trying to get that best of both worlds. We do have investment in our data centers that give us a very low cost basis and a lot of control. We also have now a significant investment in the cloud. And we think there's a way to optimize that to the cost and performance for our customers that will be very, very valuable for our customers. And so, the teams are working together well. The expertise the Zencoder team brings is excellent. And that's something that, I think, we'll see a lot of innovation projects in 2013.

Jeremy D. Allaire

Just to add one comment which touches on both the integration question and the sort of sales and marketing go-to market integration. I would say we are absolutely seeing a positive competitive advantage from the Zencoder acquisition in our Video Cloud deal pursuit. I think the acquisition, the technology stack and what that technology stack promises to the market is certainly increasing our competitive position, especially at the high-end of the market. And so that's been very positive for us in pursuing large opportunities.

Gur Talpaz - Stifel, Nicolaus & Co., Inc., Research Division

Great. Just sort of following up with that, does that integration sort of change the nature of the conversation you're having with your customers? I think you sort of alluded to this in your last comment, but beyond sort of adding nice features does it really make you more sort of competitively viable versus the bevy of other players out there? Or is just a nice to have, minor uptick in the ASP?

Jeremy D. Allaire

Yes. It absolutely helps us competitively in a meaningful way. And a couple things to remember, I think, we offer a broad suite of capability. And so encoding, transcoding live, is one piece of the puzzle. This strengthens a core piece of the puzzle for us, and that certainly does help us make -- help make us more competitive. But also our existing standalone product investments, for example, all of the work we're doing on cross-device playback, analytics and monetization is certainly helping us competitively. App Cloud and dual-screen TV apps are helping us competitively. So there are a number of things that are helping us competitively. One other thing though which I think is -- sort of changed the game for us, which we're starting to play out with Zencoder is, we do believe there is a very large opportunity here. And there are still tens to hundreds of thousands of customers that are publishing professional video, but are doing it themselves. And when see, at both the entry level of the market and the high-end of the market, a lot of folks that are doing it themselves -- the strategy of offering a standalone module for something like encoding, a developer API that can be very easily adopted, gives us inroads into those organizations. And we've started to talk about that approach more philosophically with our customers and with our prospects, and we're getting a very strong response that, that is well-aligned with how they'd like to see both the price and the market evolve.

Gur Talpaz - Stifel, Nicolaus & Co., Inc., Research Division

That's great. Very helpful. Then soft of a question on the App Cloud. Since the release of App Cloud Core, have you seen sort of a growing interest in that solution? And then more broadly speaking, in terms of your other free solutions, including Video.js, have you seen an uptick in the -- in downloads since you've been pushing those products more aggressively?

Jeremy D. Allaire

Sure. I'll take the first part with App Cloud Core. We've absolutely seen a very nice uptick in activity on App Cloud with the App Cloud Core launch. We've seen meaningful increases in developer activity around that product, and that's really exciting and fantastic. And as we talked about, in Chris's or David's comment, I don't remember which, we've started to see some of those pre-developer accounts slipping into commercial paid accounts, both at the entry-level, professional and enterprise level. And so we're seeing that kind of pull starting to happen with that launch. And so we're pleased with what we're seeing there for sure. I'll let David comment on Video.js.

David Mendels

I don't have any metrics or particular news to announce to you today on Video.js, but we feel -- still continue to feel the same excitement that we felt as we talked about this last quarter about the opportunity to establish very broad leadership in the free and open-player market, as a way to create an on-ramp into the core product. And that is still very true. It's a core part of the strategy, and you'll see us do more and more of that over 2013.


Our next question is from the line of Steven Frankel of Dougherty & Company.

Steven B. Frankel - Dougherty & Company LLC, Research Division

I wonder if we might delve into the Viacom win a little bit, and maybe you could describe for us what their previous solution was, and what you think really helped them decide to go with you.

David Mendels

The previous solution was a solution they had built on their own. They have a very talented team they had invested very significantly over a long period of time. And as we met with them, they felt like -- it was a conversation that we have often with media companies that in the early period, 5, 6, 7 years ago, there wasn't really a great choice in terms of not building then. We have just started as a company, Brightcove. And as I look at it now, they said, "What is our core business? And where do we want to strategically invest? And where do we want to add value?" And they said, "If this now is a category of online video platform and there's leadership out there in companies like Brightcove, we can leverage that and focus on the areas where we really add value." And for them, that's in their advertising strategy, that's in their content strategy, that's in their creative. And so they had -- it was a classic outsourcing move to say, "What is strategic to our company? What do we want to invest in? Where can we save money in order to invest in the things where we really do have unique competitive advantage? And leverage a company like Brightcove that has a broad and deep knowledge of this space and was able to build something that satisfies the needs of many, many customers?"

Steven B. Frankel - Dougherty & Company LLC, Research Division

And how many people were you in a final bake-off with? Was it the usual suspects like the platform?

David Mendels

Absolutely, usual suspects were in there. I don't know. I'm not going to give you a number of how many people were in the final. But from our discussions with them, it was a very typical bake-off against the names you've heard as our competitors in the past.


Our next question is from the line of Sameet Sinha of B. Riley.

Sameet Sinha - B. Riley & Co., LLC, Research Division

Actually, staying on the topic of Viacom. Could you talk about the size of this opportunity? And can you confirm that this would be across all their properties, including, like, MTV and Nickelodeon and Paramount? And the second question is, you launched your analytics platform in the middle of the year, can you give us an update on how the traction is going with that?

David Mendels

On the first question, I'm not going to give you that specific number on the size of the deal with Viacom at this time. It's a -- it's a matter of confidentiality, obviously, for Viacom. That said, we are very excited about the deal. It's an opportunity for us to grow within that account over time. It is a concept that allows us to serve many, many of their properties or all of their properties. So I'm going to wait for them to start to roll it out before we talk about specific properties. But we're really excited about the work they're doing on some great, great brands. And the opportunity to really be a global provider for them is something we're very excited about. On your second question, what's your second question, I'm sorry? Analytics. Okay. The analytics question is great. The analytics, we announced our direction in the middle of the year. We went into what we call limited availability, which you can think as a beta program over the last few months. We now have about 50 of our customers, plus or minus, in that beta program. We're getting very good feedback. We're working on all the things necessary to scale a real-time big data system to thousands of customers and hundreds of millions of player loads, and tens of thousands of events per second. And so, that work is going quite well. So we're going to continue to add customers into that data program with the goal of going in general availability for all our customers, let's say, early 2013. The feedback on the features, the design of the API, the new user interface has all been excellent. And we feel very good about the progress and the competitive advantage that it will give us in the market, in terms of having this really modern well-designed, very flexible big data system behind our product that our customers can leverage to really understand everything that is happening with their video engagement with their customers.


Our next question is from the line of Robert Breza of RBC Capital Markets.

Robert P. Breza - RBC Capital Markets, LLC, Research Division

Maybe, David, as you look at the 2 new products on the Zencoder side being released in Q4 and Q1, where do you expect the most, I guess, uptake? Will that be on the more Volume side or the Premium side?

David Mendels

That's a good question. It's probably a little too soon for me to tell you. I think there's opportunities on both sides. I'm very excited about it. I think live is a really exciting area for us as a company. We've had -- and we do hundreds of live events a month already for our customers with Video Cloud, but this provide us with another piece of the puzzle, another part of what people need in order to do great live events. So I think that's a lot of opportunity there. I think we'll see small customers that have a single event that might be on the pay-go basis. We'll also large customers that are doing tens of events or hundred or events or even thousands of events that will sign up with us. So I'm not going to give you a split right now because I think that's a little too early. We don't have a run rate on everything. But the feedback is excellent, and I think there's a lot of opportunity there.

Robert P. Breza - RBC Capital Markets, LLC, Research Division

Maybe, as a follow up, David, and I know, it might be too early to know the impacts from the hurricane. But as you maybe have had a chance to talk to some customers here and kind of look at it, do you expect any kind of lasting impact? Or have you kind of taken that into account here with your guidance?

David Mendels

Sure. In terms of -- I just want to make sure I understood your question, but in terms of lasting impact, I think that there's certainly there has been no effect in our systems, since they are in good shape. And we have no problems in that regard. The one thing that's actually quite positive is that, as we've said in the past, major news events do drive traffic for our customers. We have customers like that has seen tremendous traffic, absolutely tremendous traffic. And so it will be a very -- when we look at our data, it's going to be a very big month for us in terms of usage of the system. I think it's a big milestone for the Internet in terms of consumer use of the Internet and the video for news adoption across many news sites and certainly, on sites like And so it was a very, very high traffic. Our systems scaled, I think, very well.

Christopher Menard

And Rob, to answer the second part of your question. This is Chris. I said in my prepared remarks that I was expecting the overages revenue in the guidance to a couple of hundred thousand dollars below the peaks that we've seen in the last couple of quarters.


There are no further questions at this time. I would like to turn the call back to management for closing comments.

Jeremy D. Allaire

Thanks. We're very pleased with the solid results for the quarter. Again, beating our guidance and raising our guidance again. We're seeing strong progress across-the-board with our diverse product lines, including momentum with strategic opportunities for Video Cloud, such as our recent win with Viacom, and emerging synergies momentum with both Zencoder and App Cloud. We're also very excited about the pace and range of product innovation that we delivered this quarter and expect that to continue to help us grow our leadership position in the market for digital content publishing. Thank you very much.


This concludes today's teleconference. You may disconnect your lines this time. Thank you for your participation.

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