Brightcove Inc (BCOV) 2016 Q2 法說會逐字稿

Greetings, and welcome to the Brightcove second-quarter 2016 earnings conference call. (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 results announced in our press release issued after market close today. With me on the call 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 successful deployment of our products 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 and 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 could 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 close 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 view 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 12 months, we've made strategic investments in our product portfolio, adding new sales hires. The second quarter was a great validation of the hard work we've undertaken 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 are proud to announce that we signed 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's still more work to get the EMEA region to where we want it to be, but second quarter's performance gives us confidence that we are on the right track.

Based on our first-half results and the encouraging trends we are seeing in the business, we are again raising our full-year revenue guidance for 2016. We remain confident in our ability to deliver on our mid-teens full-year bookings growth target.

Looking at our results for the quarter, total revenue was $37 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 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 multimillion dollar agreements with two large Japanese media companies, including one that has a total committed value of more than $10 million over a 3.5 year period. These and other exciting customer wins demonstrate the great success we are 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 sizes recognize that OTT offerings like Netflix are creating the future of television and that they need a strategy to compete. At Brightcove, our focus is on delivering an unmatched breadth of ROI-driven solutions from media companies to help them thrive in this changing market.

We recently received strong validation that our OTT service is of a quality on a par or better than the best-known OTT offerings in the world, when Consumer Reports rated Acorn TV, a 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 recent launch of our OTT Flow solution, which is a turnkey solution that enables the content provider to deliver a multiplatform OTT service quickly and at low cost, is a great fit for these customers. Initial customer reaction has been very positive, and we have signed our first deals in the first months following the launch.

One of our recent OTT Flow customers is TV Dorama, 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 are new or expanded agreements with customers such as AMC, Bounce TV, Box Plus, Express Newspapers, Le Parisien, Pluto TV, Ringier AG, TV5Monde Asia, Woven Digital, and Yelp, among others.

Pluto TV 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, PopSugar and The Onion. Its business model requires it to ingest a tremendous amount of content from numerous partners in order to provide its linear TV offering. Pluto TV is switching to Brightcove Zencoder to be its 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-to-end 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 product capabilities; optimize our go-to-market messaging; and build out the sales organization, particularly in 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 an ecosystem of partners and technology integrations that place Brightcove as the video platform of choice for customers who are deploying a 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 the new Sitecore integration that we announced during the second quarter.

A great example of the value of our expanded ecosystem is our win with Xero, a leading provider of cloud-based accounting software for the SMB market. Our integrations with Marketo, Salesforce, and Adobe Experience Manager, and the confidence Xero had that it could scale with us over time, were the key differentiators in this competitive sales cycle.

During the second quarter, we signed new or expanded deals with a range of industry-leading brands in our digital marketing enterprise business, including Angie's List, Comodo, Jardine Matheson, Keurig Green Mountain, Lush Cosmetics, Morningstar, Omron, Rolls-Royce, SAS, TUI Group, Under Armour, 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 its subscriber base and the general public as a way to drive greater customer engagement with its website. Angie's List selected Brightcove, and we'll be deploying Gallery and our new player to replace a legacy homegrown video solution.

The ease of use of Gallery, the fast time to value in getting a branded portal live, and the great experience members of the Angie's List team have had with Brightcove at prior companies, were all clear differentiators.

Keurig Green Mountain chose Brightcove Gallery to address a customer support challenge without adding headcount. Gallery enabled Keurig to leverage the power of video to provide 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 PLAY 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 we are most excited about address 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 Radius, which we previewed at PLAY and is currently in beta, is 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, insert calls 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's 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 or 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're well-positioned to generate accelerating revenue growth and profitability over time.

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 a little bit more, Europe generated 17% of our revenue, and Japan and Asia-Pac generated the 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. The 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 in bookings during the second quarter. This drove higher commission expense, which is largely accrued in the quarter a deal is signed.

In addition, Q2 is our biggest quarter in terms of customer-facing events, including our annual user conference, PLAY; NAB; and Oracle Modern [Marketing] Experience, which drove higher sales and marketing expense as well.

By way of example, on a combined basis, sales and marketing expense related to these specific activities was up by more than $800,000 on a sequential basis. Non-GAAP loss per diluted share was $0.01, based on 32.8 million weighted average shares outstanding, and in line with our guidance range of a loss of $0.02 to breakeven per share. This compares to a loss per share of $0.04 on 32.5 million weighted average shares in the year-ago period.

Turning to the balance sheet and cash flow, we generated strong cash flow in the quarter, ending the quarter with cash and cash equivalents of $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 capitalized internal use software, we generated 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 the 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. From a profitability 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 $0.01 to $0.03, based on 34.9 million weighted average shares outstanding. Adjusted EBITDA is 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 represents year-over-year 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. We remain on track to deliver a mid-teens bookings 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 $9.5 million. 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 a 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 are confident will deliver enhanced shareholder value over the long-term.

And with that, we'd now like to open up the call for questions. Operator, we are ready to begin Q&A.

(Operator Instructions). Tom Roderick, Stifel.

Thanks for taking my questions. Congratulations on another nice quarter, particularly on the big media bookings here and in Japan. 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 over the past several years. And I think you guys did that somewhat relatively quietly as a public company.

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 of these bigger media entities that you are winning at this point.

Sure. First of all, thank you for joining us today, and it's great to have you on the call. It was a great quarter, and it's great to have a chance to chat with everyone here.

Thanks for the question, by the way. It does play into pretty big themes of what we've been focused on here as a company for several years now. And we've touched on, in some of these calls in the past, we really went through a process starting -- really going back three years now where we looked at the overall architecture that we had. And if you remember, we started building this product in 2004. In 2004, the ecosystem and the technology that we had available to us was very different than what we have today.

So for example, we built our own data centers. We built a lot of things from scratch. And then we sort of grew that organically over time, and very quickly because we grew very fast in that first period from, say, $0 to $100 million and lots of customers. So you build really, really fast and at some point you start to slow down, because you are building the plane and flying the plane the same time.

So we made a very concerted investment a few years ago to modernize the back end of the product as well as the 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 in a geo-distributive fashion 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-fold. The product is faster. It's 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 to the right customer.

And then from an internal perspective, there is an added benefit of engineering velocity, in that instead of spending a lot of time kind of maintaining an old architecture, when you get to build clean code in software you can move faster. You can innovate more quickly. And so we are in that period right now.

And if you look over the last couple of years -- Gallery and Audience, and Brightcove Lift and the Brightcove new Player, and the Brightcove new Studio -- you've just seen a much -- an accelerating cadence of us delivering new innovation to the market. And there is absolutely no doubt that that is one of the reasons that we are accelerating our growth and we are winning customers.

Great. And Kevin, financial question for you, just on the backing of that. As you win some of these big media properties, I guess historically we've seen that lift in professional services right up front; and then two, three, four quarters out, that's when we start to see the lift in subscription.

Is that how this should play out? And does that sort of align us towards that goal towards sustainably being in double-digits, and maybe even kind of getting back towards better than that, as far as revenue accelerating as we look into 2017?

Yes, it's a great question, Tom. It's interesting because when you look at the two big Japanese deals we did in the quarter, one had professional services associated with it. And we did see a little bit of a trend in 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 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 no 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 deals. I think to David's point earlier, the core underlying infrastructure of the business and the better products that we've delivered 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 are not guiding 2017 today, as you can imagine. We'll get to that when we get to that. But what we've talked about this year, in order to give you a little bit of visibility, is 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 continuing to focus on driving growth with profitability. Continuing to accelerate the growth rates from what we see today up into the mid-teens is the first step. Where we get to the second step, I'll get to that later when we get into guiding 2017, and see if we are ready to do that or not.

Great, perfect. I'll jump back in queue. Thank you guys very much. Appreciate it.

Steve Frankel, 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 are these DIY solutions? And maybe what these customers are planning to do with your platform.

In both cases, we are, for the most part, replacing DIY solutions. One of the customers had used one of our competitors once, but not materially. It's primarily replacing DIY. They are both large media companies. At some point, I expect we'll have -- be able to talk about this in a great deal of -- give you a great deal of color. But both of these companies have significant launch plans for what they are doing with their business. And I don't want to be in a position of trying to announce someone else's business. So they've asked us to withhold until they are live, and hopefully we'll 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 a very sophisticated, high-quality video delivery service that rivals the best of anything you have seen anywhere in the world.

Great. And as you look to the back half of the year and your deal pipeline, maybe you could characterize elephants versus deer, and jaguar or whatever else analogy you want to use there. Are there more of these what we would consider monster deals? Or did you kind of bag those, and now it's back to more typical Brightcove deal sizes in the back half of the year?

I want to be careful not to get too specific there, because we don't want to add too much color to the guidance. The guidance is still the guidance. We feel very good about it. There are big deals and medium deals and small deals in the pipe. The really large deals, we've done a number, and will continue to do them, but they are lumpy. And what I think we've learned over the years is you can get yourself in trouble by trying to be too precise about which quarter they are going to land in, because these companies take a while to land on their business strategies as well.

So we have all three kinds, if you will. We've got the mammoths, we've got jaguars, and we've got mice. I don't know if that's the right term. But we've got all -- a wide range of deals. Clearly, deals of this size are going to be lumpy and come periodically. But we mentioned last quarter another very significant deal, not necessarily of quite the same size, but with a top 10 US broadcaster. And so we definitely see there is enough opportunities in the world to continue to do large deals, and that will be a key part of our growth strategy.

Two more quick ones. Maybe an update on the -- speaking of the smaller deals, on your starter pack strategy. And then, what were overages in the quarter?

Okay, great. On the starter pack, I'll do that one. I'll ask Kevin to talk to overages. The starter pack, we are off to a good start. We don't have a huge update for you now. As we told you last quarter, the first quarter or two is a little bit of a beta phase, where we are doing a lot of testing in the market but it's not yet publicly available through a self-service buying process on the website. And that just takes some work. There's some infrastructure and payments, and all that stuff that has to get done. So that will get rolled out somewhere in the middle of the second half. And we'll see a little more acceleration then, and we'll have a little bit more visibility into what the trends are going to be.

For now, we've gotten really good feedback. We've closed a bunch of deals. We think they are the right kind of customers. That's important to us. It's important to us that we don't inadvertently slip back into an SMB target business which is what we had three, four, five years ago with Express. We really want to target medium to large enterprises that can eventually be larger customers and use this as an entry point.

So far, our data, which is not very large scale, but the data we have is excellent. We are getting the right kinds of customers. We are bringing them in the door. And I think that they will then be long-term customers that we can grow, and that's very much the strategy. So we'll have a lot more to say about that, I think, by the end of the year as we roll out a more aggressive promotional strategy.

Steve, it's Kevin. In terms of overages, 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 throughout the four quarters.

I'm sorry. $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.

Glenn Mattson, Ladenburg Thalmann.

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 in my model, I have it trending back up. Could you talk about just the dynamics driving it currently, and what do you expect going forward?

Sure, Glenn. 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 cost 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 our bandwidth, and some of the other usage of the business in the first and second quarter of the year, which drove higher cost 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, do you want to talk a little bit more about -- you sounded excited about the marketing side of the business. Best quarter, I think, since the end of 2014, is what you said. Maybe a little bit more about what's driving that? Is there just increased activity out there? Or are people more responding to the integrations you've made with some of your partners?

It's an all-of-the-above story. We feel very good about it. We think that we are 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 and personalization, 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, fundamentally, I think there is 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 of years ago with the video marketing suite, the Gallery product, which we've been able to advance pretty significantly over several years now, and we are seeing a lot of adoption; the Brightcove 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 Sitecore -- 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, I'll add, we added salespeople. So, we are going to keep driving this as we ramp those salespeople up. I think there is a nice opportunity.

Thanks. And the competitive landscape on both businesses -- anything -- 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 had 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's no one competitor that we compete with in the majority of our deals, or even 20%, 30% 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 smaller set of competitors. But I'd say it's similar. We are in a strong position. And it's actually -- the competitive landscape is a little bit cleaner and easier to navigate. And I think we are in a more definitively strong position on that side of the house, just because it's a newer space and we are leading it.

Great. Okay, thanks for the color.

Sameet Sinha, B. Riley.

In terms of the gross margin, you spoke about how sometimes usage is higher versus revenue recognition. Do you think at some point they -- it catches up, and the two come together, and margins start to go up? Or do you think with your kind of deal signing velocity, you 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? Basically, I'm trying to figure out, are these investment plans incremental to what you announced in Q1 -- I'm sorry, when you reported the fourth-quarter numbers? Or is it kind of the same; it's just that you are being conservative? And lastly, if you could talk about overage, how much it was in the quarter?

All right. So three questions in there around margins, profitability, and overages. So, overages, 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 range last year in 2015 was $2.1 million to $2.4 million.

On the gross profit margin side, there's a couple things. When you think about margins in general for the full Company, that's -- that has actually been impacted about 150 basis points year-over-year, just from a professional services mix. As we have driven more professional services ahead of some of these larger deals that we've just done, that is at a lower margin rate than our software business. And so you see that natural kind of decline of margins overall for the business with that.

Then that coupled with the higher usage and the earlier parts 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 snap back over time. The goal for us as a company is to continue to look for leverage in the gross margin line over time as we try and get more and more profitable. So that answers that first question.

As we are talking about leverage on the bottom line, there's a couple of things here. Number one, we did raise our guidance on the non-GAAP operating income. That's up $300,000 on both the bottom line and the top line. We don't have as much depreciation and amortization as we expected this year. And so that's why we remained a bit flat on the EBITDA side of things.

And then with regard to what 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 commissions on the big deals that we just had that wasn't really in our model, but we did land the deals. And so when we look at kind of the $800,000 of incremental expense that we had in Q2, clearly that's a good problem for us to have. Higher expense related to larger bookings is a great position to be in.

Great, thank you.

Eric Lemus, Raymond James.

Thanks, guys, for taking the question. I wanted to follow-up on David, one of your comments around sales hiring. If we could just get an update as far as where you guys stand according to you plan for sales hiring, and the mix of where that sales hiring is going, either on the digital marketing or the media side.

We are right on plan, and things are going fine. In terms of number of heads, it's a little more in the digital marketing side. Those tend to be lower-cost heads that you hire more of, because it's a more transactional business; less of the megadeals that you go after with the big elephants on the sales front, to continue the metaphor from earlier in the call.

So in terms of numbers of reps, it's more in the digital marketing side, but both are important. On digital marketing in particular, I think we are seeing we were successful in hiring quite a few people and hitting our plan in North America. That was a key investment area for us. We feel very good about that. And then we also had a good range of key hires in international, in a number of our international regions, for both digital marketing and add for media.

So across the board, really, from a regional perspective and a business unit perspective, we were right on plan in terms of numbers.

Got it. That's good color. Kevin, I guess a question I had on your mid-teens bookings growth estimate that you have for this year. Can you just extrapolate that number a bit in terms of the financial metrics that you give, the average subscription revenue per customer, and how that reflects also on your net add activity for the remainder of the year? Kind of the mix shift there.

Yes, we don't really guide in terms of customer count because that's hard to guide to, and we just don't know. And, quite frankly, what David said earlier today, even with a very, very strong bookings quarter, some [decent] of our bookings came from existing customers. And so the way that we look at either customer count or average revenue per customer -- those bookings yet haven't actually generated revenue as much as we would see that in that ARPU number.

So from our perspective, when we look at what we are going to achieve for the rest of the year here in terms of bookings, and the color around the mid-teens bookings growth, we feel like, a, we are right on plan through the second half -- through the first half of the year. We've got visibility into the second half of the year at this moment that gives us strong confidence that we'll be able to achieve that goal.

We did say we don't want to get into a quarter-by-quarter -- how is this quarter compared to the year-ago quarter, et cetera. We just said that we would give color where we are in any given quarter against that mid-teens bookings growth goal. So I just want to clarify what we said there.

Okay great. Very helpful. Thanks, guys.

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 it's a good opportunity to catch up with everyone. We look forward to talking to you again in 90 days. So thank you very much.

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