Brightcove Inc (BCOV) 2016 Q3 法說會逐字稿

Greetings, and welcome to the Brightcove 2016 earnings conference call. At this time, all participants are in a listen-only mode, and a question and answer session will follow the formal presentation. (Operator instructions) And as a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Mr. Brian Denyeau of ICR. Thank you, Mr. Denyeau. Please go ahead.

Good afternoon, and welcome to Brightcove's third-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. They are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, including statements considering our financial guidance for the fourth fiscal quarter of 2016 and the full year 2016, successful deployments 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 [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 discussions of material risks and other important factors that could affect our actual results, please refer to those contained in our 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 on 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, Dave 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 third-quarter 2016 results as well as our guidance for the fourth 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 to review Brightcove's third-quarter results, which were highlighted by solid revenue growth, profitability, and free cash flow.

Looking at our results for the quarter, total revenue was $38.4 million, up 13% year over year, and above the high end of our guidance range. Adjusted EBITDA was $2 million with non-GAAP income from operations of $913,000 leading to non-GAAP net income per diluted share of $0.02, all of which were in line with our guidance.

From a top-line perspective, we have exceeded our quarterly guidance in all three quarters during 2016. And as Kevin will describe in detail in a moment, we are again raising our full-year 2016 expectation in this regard.

A component of our third-quarter revenue performance was greater-than-anticipated overages and professional services. From a profitability perspective, we are modestly lowering our full-year guidance as we have made investments throughout the year which are intended to drive our growth, and they are coming in a bit higher than we had originally planned.

We are making great progress positioning Brightcove for long-term success. I spent a lot of time on the road with customers, and they love what we've done and where we are going from a product perspective. This is reflected in our most recent net promoter score, which showed significant improvement year over year and was our highest ever. It is both gratifying and exciting to get such positive feedback, and it tells us that our strategic course is the right one.

During the quarter, we made continued progress from both a go-to-market and a product perspective in our digital marketing and media business units. The improvements we have made so far this year are meaningful and encouraging, but there are still more to do and additional improvements we need to make across the organization.

Through the third quarter, we have achieved mid-teens bookings growth. But we are facing a challenging fourth-quarter comparable that may make it difficult to achieve our full-year goal.

The tremendous progress we have made in updating and enhancing our product portfolio is a big reason we are confident in our ability to achieve our long-term goals. We're proud to announce in this regard that we have received the top rating from three of the leading industry analysts within the last several weeks.

Earlier this week, Forrester named Brightcove a leader in its Wave for Sales and Marketing Online Video Platforms. Forrester noted that Brightcove has established a platform of best-of-breed technologies for the use of video in sales and marketing operations. They concluded that Brightcove is the best fit for companies with sophisticated video marketing needs.

At the end of September, Ovum, a leading analyst house covering the intersection of the telecom, media, and IT markets, named Brightcove the global market leader among OVPs for premium content owners. In its Decision Matrix Report, Ovum pointed to Brightcove's developer-friendly HTML 5 player, highly diversified video monetization roadmap, and steadily expanding geographical footprint as the key reasons behind our ability to maintain global market leadership.

Finally, in August, Front & Sullivan recognized Brightcove once again with its 2016 Market Leadership Award for OVPs. Frost & Sullivan specifically highlighted the work we've done in refreshing and expanding our product portfolio to give customers, quote, "holistic, market-leading solutions for online video management." End quote.

We are not resting on the success and are executing against an exciting product roadmap that will deliver even greater value to customers. As we've discussed previously, we're particularly excited about our new dynamic delivery platform, code name [Bolt], which will be released in the coming quarters.

A complete refresh of our back-end infrastructure, Bolt's dynamic delivery capability will allow for just-in-time video packaging, and that will enable customers to create one version of a video that can be delivered to any device instead of creating separate versions of a video based on each necessary streaming format, end point device, or DRM requirement.

Bolt is a major step forward in the market that will low a customer's total cost of ownership while making it faster and easier to deliver and monetize new digital content across current and future devices.

Our new social product is being delivered to the market in the next two weeks. Brightcove Social is the first solution for marketers and media organizations to manage and publish native video across multiple social channels, optimize and edit video for each platform, and aggregate video analytics from the different platforms in a single location. We believe Brightcove Social will be a real differentiator for us in the marketplace.

Another area 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 made additional progress in this area during the quarter with new integrations with Salesforce.com. The Brightcove video connect for Salesforce integration enables Salesforce users to increase their engagement with customers, prospects, and employees throughout the buying cycle. This is a great example of how we're able to expand use cases for Brightcove across the enterprise, which increases the number of potential users and the value we can deliver customers.

I'd now like to take a few minutes to review the progress we are making across each of our target markets starting with the media business. We continue to see new opportunities emerge around the world as the proliferation of high-speed mobile broadband connectivity makes online video, or OTT, offerings a high priority for traditional broadcast and content providers.

An area of increasing focus from Brightcove in the media sector is Latin America, where we had several notable wins during the quarter and an expanding pipeline of opportunities. We are investing to building this success by hiring our first regional director for Latin America and opening an office in Mexico City. We see good opportunity in the region for both of our business units, but particularly in media in the early stages.

Brightcove signed new or expanded customer wins in the third quarter that reflect the breadth of opportunity around the world. Aernow and Expansion SA in Latin America, Baddl Technologies in India, Spuul in Singapore, Book Walker in Japan, Marmot in Canada, Next Interactive Media in France, UKTV in the UK, Fairfax Media in Australia highlight our strong growth outside the United States. Genius, Sony, Time, Inc., CRTV, Legacy Research Group, and RLJ Entertainment demonstrate our success in the US market.

Next Interactive Media is a French news and sports channel reaching audiences across France, North America, and North Africa. A longtime Brightcove customer, they recently increased their relationship with us in order to expand the number of live and on-demand channels they deliver across desktop, mobile, and connected devices. They rely on Brightcove to simplify and manage the growing technical complexity of their video offerings in order to quickly bring new content to customers and effectively monetize their digital video assets.

Genius is a crowdsourced service to annotate musical lyrics or any other text-related content that lives on the web, or, as they describe themselves, an interactive guide to human culture. Given its musical heritage, video was a natural element of its website. To capitalize on potential partnership opportunities, Genius decided it needed to look beyond the functionality provided by YouTube. Genius chose Brightcove Video Cloud because of its functionality, flexibility, and integration capabilities.

Turning to our digital marketing business, we are continuing to see customers allocate an increasing portion of their budget dollars towards next-generation digital marketing solutions and video in particular. Video has a compelling ROI driving improved performance across the customer journey from awareness to engagement, conversion, retention, and advocacy. And that results in greater sales and more loyal customers.

We are focused on how we can build on the momentum in this market and drive even faster adoption in sales velocity. We're pleased with the number and quality of the sales reps we've hired in our digital marketing group this year. And getting our reps fully ramped and productive is a key milestone. We are seeing good initial results.

During the third quarter, we signed new or expanded deals with a range of industry-leading brands in our digital marketing and enterprise business including Aviva, Eaton Corp., Enterprise Holdings, Gaiam, John Wiley & Sons, Kaplan Test Prep & Admissions, Vantiv, ServiceNow, Smithfield Foods, and The Church of Jesus Christ of Latter-Day Saints, among others.

Enterprise Holdings, which is the largest car rental company in the world and includes the Enterprise, National, and Alamo brands, chose Brightcove to power its growing investment in brand awareness through video. Enterprise felt it had reached the limits of its brand-building efforts through YouTube and was looking for a way to maintain more control over the viewer experience on its own web properties.

It chose Brightcove for its easy-to-use functionality, seamless integration into its existing CMS system, and because Brightcove Social will enable them to manage and track its YouTube presence as well.

ServiceNow has steadily expanded its use of video throughout its operations and found itself in a situation where it was utilizing multiple vendors across a number of use cases. The complexity of managing and dealing with multiple vendors had become unwieldy, and ServiceNow was looking to standardize on a single solution.

Brightcove's broad functionality, integrations with key elements of ServiceNow's existing marketing technology stack, especially Eloqua and Adobe Experience Manager, led ServiceNow to select Brightcove for external marketing and internal communication and training activity.

Lastly, I'm pleased to announce an organizational change within Brightcove. We have named Andy Feinberg as Brightcove's President and Chief Operating Officer. As COO, Andy will be responsible for both of our business units and all of our customer-facing operations globally.

Andy has served as our President of International Operations and, together with his teams, has been a driving force behind our strong international growth over this past year. We believe his talents can be leveraged even further worldwide.

To summarize, Brightcove delivered solid third-quarter financial results. Our much improved product offering and go-to-market messaging is resonating with customers, and we are focused on building on that success going forward.

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

Thank you, David. And good afternoon, everyone. Let's start by reviewing our third-quarter results and then I'll finish with our outlook for the fourth quarter and full year.

Our total revenue in the third quarter was $38.4 million, a 13% increase from the third quarter of 2015, and above the high end of our guidance of $37.5 million. Breaking revenue down further, our subscription and support revenue of $36.2 million was up 9% year over year. And professional services revenue was $2.2 million, up 235% year over year.

Driving the revenue overperformance, we generated $3 million of overages during the quarter, which were higher than anticipated, and $400,000 of professional services revenue was above our guidance. While we are pleased with our performance, we do not anticipate this level of overages to continue in the future.

Now let me add some color around our revenue mix. In the third quarter, our premium offerings generated 95% of total revenue while our volume offerings generated 5% of total revenue. On a geographic basis, we generated 61% of our revenue in the quarter in North America and 39% internationally. Within international, Europe generated 17% of our revenue, and Japan and Asia-Pac generated the remaining 22% of revenue during the quarter.

This quarter we are reintroducing a reclassification of our split between our media and digital marketing enterprise business units. Traditionally, we have reported the mix based on a customer's SIC code, including all of or legacy volume business, which is a small and declining part of our revenue.

In order to provide better clarity and transparency into or business, going forward, we will now report this split based on business unit, and we will also separate out volume revenue. We have provided historical results back to the first quarter of 2015 in order to provide investors with trend data in our earnings release today.

From a vertical perspective, our media business represented 57% of our revenue in the quarter, and our digital marketing enterprise business represented 38% of our revenue, while volume business represented the remaining 5% of our revenue.

Let me now turn to the supplemental metrics that we share on a quarterly basis. Our recurring dollar retention rate in the third quarter was 97%, above our traditional target of low- to mid-90% range.

Looking at our customer count, we ended the third quarter with 4,647 customers of which 1,981 customers were classified as premium. Our average revenue per premium customer was $70,000, which is up 4% year over year.

On a GAAP basis, gross profit was $24.6 million, operating loss was $1.6 million, and loss per share was $0.05 in the quarter.

Turning to our non-GAAP results, gross profit in the third quarter was $25.3 million up from $22.9 million in the year-ago period, and represented a gross profit margin of 66%. Subscription and support revenue represented approximately 94% of our total revenue and generated a 69% gross margin in the quarter. Professional services gross profit was $169,000, or 8% of revenue in the quarter.

Non-GAAP income from operations was $913,000 in the quarter compared to $1.3 million in the third quarter of 2015 and was in line with our guidance range. Adjusted EBITDA was $2 million compared to $2.7 million in the year-ago quarter and was also in line with our guidance range.

Comparing our results year over year, we made investments in sales, marketing and R&D to accelerate our revenue growth. Non-GAAP income per diluted share was $0.02 based on $35.6 million weighted average shares outstanding and in line with our guidance range of $0.01 to $0.03 per share. This compares to income per share of $0.03 on 33.5 million weighed average shares outstanding in the year-ago period.

Turning to our balance sheet and cash flow, we continued to generate strong cash flow in the quarter ending the quarter with cash and cash equivalents of $35.2 million, which is an increase of $11.4 million in cash as compared to the prior-year quarter and an increase of $5 million sequentially.

During the third quarter, we generated $2.6 million in cash flow from operations. With $1.4 million in capital expenditures and capitalized internal use software, we generated free cash flow of $1.2 million for the quarter compared to $3.1 million of free cash flow in the year-ago period. Our cash balance also included approximately $4 million from the proceeds of stock option exercises.

I'd now like to finish by providing our business outlook for the fourth quarter and full year 2016. For the fourth quarter, we are expecting revenue to be in the range of $38.5 million to $39 million including approximately $2.3 million of professional services revenue.

From a profitability perspective, we expect non-GAAP operating income of $1 million to $1.5 million for the fourth quarter. Non-GAAP net income per share is expected to range from $0.02 to $0.03 based on $36 million weighted average shares outstanding. Adjusted EBITDA is expected to be in a range of $2.3 million to $2.8 million in the fourth quarter.

For the full year 2016, we are raising our revenue guidance to be in a range of $150.1 million to $150.6, which represents year-over-year growth of 11% to 12%. In terms of profitability, our non-GAAP operating income is expected to be in a range of $2.3 million to $2.8 million, and adjusted EBITDA is expected to be in a range of $7.1 million to $7.6 million.

In addition, we expect non-GAAP net income per share of $0.05 to $0.06 based on 34.8 million weighted average shares outstanding. We now expect free cash flow to be in a range of $5.7 million to $6.7 million for the full year.

The primary driver of our updated profitability guidance is higher commissions related to multiyear transactions. From a commission perspective, we are incenting our reps to sign multiyear deals with increased financial commitment from customers, and we pay our reps based on the highest annual ACV in the contract. We signed more of these deals than we originally anticipated. While this shift will have a short-term impact on our profitability, we believe the benefit from more multiyear commitments is a positive for our business overall.

In summary, Brightcove delivered strong third-quarter financial results, and we are pleased with the accomplishments we delivered so far this year.

With that, I would now like to open up the call for questions. Operator, we are ready to begin Q&A.

Ladies and gentlemen, at this time we'll be conducting the question and answer session. (Operator instructions)

Tom Roderick, Stifel.

Hi, it's actually Parker Lane in for Tom. Thanks for taking my question. The first quarter you've shown year-over-year growth in the European region in a about a year and a half now. Just wondering if you can discuss some of the developments in that region, how your sales efforts have been, how you feel about leadership there?

Hi, sure. First of all, thank you very much for joining us. Good to speak with you, Parker. And thank you to everyone on the call. It was a strong Q3, and appreciate everyone joining us today for this call.

As for Europe, yes, I appreciate you noticing that. We put in place new leadership. Let's see, about five quarters ago we asked Andy Feinberg to step in as President of International. And then he made some changes and brought in Mark Blair to head up our European team at the beginning of this year. Mark had been a really seasoned professional leading our operations first in Australia and then across the Asia-Pacific region. And Mark has, I think, successfully helped stabilize the ship in many ways, bringing some new people, build some new customer relationships. And we're quite pleased with the progress.

I think we still have a lot of work to do. We haven't achieved everything we'd like. I think there's a lot of opportunity in Europe. And so hopefully we'll see good progressive progress there over the next many quarters as well.

All right. And then as far as the investments you've made in the business and your future plans for this year, how much more hiring do you think there is to be done on the sales front? And what are you seeing now in terms of the average ramp time for some of those sales reps to get up to speed and selling to your core markets?

Sure. We haven't finished our annual planning process for 2017 yet. So how many people we'll hire -- we still have some work we're doing on all the modeling and planning for all of that. But I think there's definitely room there.

We think we're in two exciting markets, both the digital marketing enterprise space and the media space. There is opportunity in both markets, a significant opportunity much larger than we are today that we are in our strongest position ever in terms of our product offering and our competitiveness. And so I definitely think there is room for us to continue to ramp and grow a sales force that can penetrate new regions, that can continue to expand our reach, that can continue to grow our existing customers.

We did mentioned specifically in the script that we're adding sales for the first time in Mexico City to cover the Latin America region, and we're excited about that. It's a large continent, and lots of opportunities there. And so we think we've had some good wins there without having a focused team, and we think we can continue to grow that. So I think you'll definitely see some sales growth from us. I can't give you exact numbers, but I think there are opportunities.

In terms of the ramp time, it depends a little bit on where they are in the company and what they're focused on. The ramp time for sort of the big deal guys -- and I should say big deal people because it's both men and women -- on the media side is a good couple of quarters, two, three quarters. And you really start to see a big impact after a year and the second year.

On the digital marketing business, the majority of those people are more inside sales with shorter sales cycles, and so you start to see a good ramp in a little bit of productivity even in the first quarter, but really two to three quarters and those guys are usually pretty well ramped.

All right. Thank you, guys.

Steven Frankel, Dougherty.

Good afternoon. A couple questions. Let's start with the trend towards multiyear deals. I mean, obviously that helps improve your visibility and your confidence in the business. But from the customer perspective, is it more aggressive pricing that gets them to lock in, or what's the attraction from their side?

I think that the attraction is we are able to really work with some of our larger customers to really get into a partnership or strategic vendor mode where we get out of being used in a tactical way for a project and start to be viewed more as a strategic vendor. And many of the large companies really prefer to have multiyear relationships in order to have stable vendor relationships and be able to build a partnership and build a relationship. And so I think that's really a primary factor.

Clearly when people -- the typical sales negotiating strategy is buy more, get a little bit of a better deal, and there is some of that. But we're not typically discounting heavily in order to drive people into multiyear deals. There's a small amount of that, but it's not a major factor that really skews the business in a significant way.

And in terms of the premium ARPU, which is still growing nicely, although at a little slower rate than the last couple of quarters, in this quarter in particular, was it driven by the large number of customers that you signed? And I assume given the number, that probably was heavily slanted towards the digital marketing side?

Yes, well put. I could add a little bit there which is the -- we added, I think, it was 55 net customers. So that changes the denominator, and so that naturally leads to this. As we go forward, this is a topic we've been talking a little bit about as to what's the right metric and the right way to talk about this, and I don't think we have the answer yet.

But just to give you a little bit of color, as we continue to mature the two different businesses, the business dynamics are a little bit different where the media business growth is driven by fairly large deals and fairly significant deals, and we've talked about some very, very large deals over the last few quarters, whereas the digital marketing business is driven by a much higher volume of smaller deals.

And in particular, as we've talked about several times over the course of the year, the introduction of new entry-level pricing to really get people started at that first project and not wait for them to make an enterprise purchase. And those price points could be much lower.

So we could have two dynamics here that make this metric a little bit hard to predict, which is big deals on the media side, which is obviously promising, but a large volume of smaller deals on the digital marketing side, which is also promising. But the two of those make the ARPU growth rate a little bit harder to predict going forward. So we're going to have to think a little bit about that and how we give you guys a better understanding in future quarters.

And could you give us an update on that entry-level product that you introduced a couple quarters ago? How's that going relative to your expectations? And have you -- when do you think you start to get upsells from that?

So, so far so good, but we got off maybe to a little bit slower start than we wanted by a quarter or maybe a quarter and a few months in terms of really being able to get it out very broadly. So we introduced new entry-level pricing to our sales team to have as an offering several quarters ago, and that has driven some of the new customer growth, and that's great.

But we only just yesterday -- and not timed for this call. It's just pure coincidence the timing here. But only just yesterday sort of made that available in an e-commerce sort of self-service way on our website on a global basis. So that's really going to reduce friction for people that are coming in and looking for a video service on a project level and they want to get started fast (inaudible) credit card. And so I think that's going to start maybe a little bit in the fourth quarter, but I think you'll see a lot more in 2017 really ramp up the number of people that enter at that point.

In terms of how long it takes to get upsells, I think with the new offering, it's premature for us to give you a specific. And we just don't have enough data. The sample size is still too small. But I will say that we've seen some customers upsell within a quarter or two, and other customers it's really as they round the year. It really depends on why they're buying us, what the use case is, what the opportunity is within the account.

But there's absolutely -- there are opportunities where you can really think about that entry-level pricing as almost a paid trial. And once they actually start to use you, which could be within months, not quarters, you can get an upsell. And other cases, where obviously it'll take a little bit longer.

And let me sneak one last quick one in. This the first time you hedged a little bit around that mid-teens bookings growth for the year. And I understand Q4's a tough comp. Have you seen something quarter to date that makes you incrementally more cautious, or are you just trying to be cautious in general with what was a pretty ambitious goal given where you started the year?

Yes, and thanks for the question. I think it's an important question. We -- I don't really want to comment on quarter to date. I don't think there's anything there, to be honest. I think we're being, I would say, appropriately cautious. It's a big comparable. We have a lot of work to do. It's not a gimme. And because the fourth quarter is both our toughest quarter and our largest comparable, we thought that even though year to date we're very pleased with achieving that goal, that there was some risk, and we wanted to make sure that people were appropriately cautious.

Okay, thank you.

Glenn Mattson, Ladenburg Thalmann.

Hi. Curious with the significant number of M&A activity going on in the marketplace, is that something that you kind of -- I don't know, is it something that you think about or are concerned about at all that potentially some of your customers or a big customer could be snatched away by another entity that can deliver video? And just maybe thoughts on that [in] regards to the marketplace.

Sure. Thanks for joining us. Good question. Yes, that has happened from time to time where we've sold to a given company, they've gotten bought by a company that uses a competitor of ours, and we've lost a contract. In fact, the inverse has also happened where a company that happens to be a customer of Brightcove buys a company that might be using a competitor, and that becomes an opportunity for us. And so I'm not sure that that in and of itself is a significant variable in how we project our business.

Okay. On the new product with the code name Bolt, I guess, I missed when you said it was going to be released. Did you say over the coming quarters?

Yes, that's what we said. The product is being used already in sort of early mode by one of our largest customers worldwide, and we're very excited about that. So we're starting to kind of get the kinks out and getting it working in production. By the end of the year and early next year, we'll be rolling that out a little but more. And then over the coming quarters, it will become the new standard back end for all of Brightcove.

So would you imagine, is there pent-up demand for this product at all as you see it now?

Yes, I think the impact of this product is different on different segments of our customer base, and that's important to understand. It will have a positive impact in our ability to flexibly deliver a video in a high-quality way while minimizing costs for all our customers. So that's good news for every customer.

In terms of pent-up demand, the place where it's going to have the biggest impact is the large media customers doing complex deployments of video to many devices. And they have to deal with different formats, different DRMs, different caption types. And so that's where I think it'll have the biggest impact.

And I think there is absolutely a little bit of pent-up demand in that space. I think a lot of the large Tier I entertainment companies and the like and content owners and the like are struggling with the complexity of delivering video to all these different devices with all the different security models.

Now, that said, I don't want to make you think that means it's an easy sale and we (inaudible) a whole bunch in the first quarter. Hopefully, we'll get some good progress every quarter next year. But while that's where the pent-up demand is, it's also those are the most complex customers who take a little while to adopt technology because they have very, very high requirements or complex requirements and integration needs.

And on the social product, is there anticipation of a strong uptake early on? Have you done field tests?

Yes, I think we'll see some pretty significant uptake fairly quickly. It's an easy product to adopt. It's going to be a nice impact economically in some cases by getting people to upgrade into the video marketing suite, in other cases by people buying the social product more as a standalone add-on. But it's a fairly easy to adopt product for our customers. I think we've had quite a few customers in the beta program. We've been getting positive feedback. So I expect we'll start to see some uptake this quarter.

And just one last one. On the weaker, slightly lower profitability for Q4, is that just solely attributable to the higher selling expense related to the multiyear deals?

It's a combination of that. We also had a couple of, I'll call it, higher expenses in the quarter that are more one-time expenses around some consultants that we used, that sort of thing, more on the pricing side. But generally speaking, when I think about not only commissions within the quarter, but I also think about the commissions that we had last quarter, so my commentary in the prepared remarks was more broadly speaking talking about the full year and profitability on the full year as it relates to commissions.

Okay. In general, that's been something that you've been trying to drive is the multiyear deals. So I guess, you've had more success maybe than you planned, but that's an overall good problem in your view, yes?

Yes, exactly.

Okay, great. Thanks, guys.

Sameet Sinha, B. Riley.

Yes, thank you. so I'm going to ask a couple of questions about the bookings commentary that you made. So you have -- how many quarters of tough comps do you have for that metric? Seemed like there's maybe one quarter or maybe two -- if you can elaborate on that?

And secondly, your appropriately cautious when you speak about that. Does that prevent you from reaching kind of that goal that you had put out there of accelerating revenue growth in 2017?

Let me stop you. Let me get the first two questions, and then we'll go to any further. On the first one, I was only referring to Q4 as a particularly tough comp in that a year ago, Q4 was a strong quarter. So that's what I mean by a tough comp in comparison. So Q4 does stand out among the four quarters of the year, and that's why I called it out.

As for your second question, I don't think we are at risk of -- we're not concerned about whether or not we are accelerating revenue year on year. I think we're on track for that. The specific point we made was as it relates to -- we had talked about achieving mid-teens bookings growth for the year. And we achieved that for the first three quarters of the year. We're very pleased with that. As we look to Q4, it's a tough comp, and it's also just -- it's our largest quarter of the year. And so we wanted to be a little bit appropriately cautious about that.

Fair enough. Thank you. Can you talk about gross margin trends as you see? Seems like gross margins, non-GAAP gross margins increased sequentially. Is there a trend that we should see going forward? I mean, I think you're going to play catch-up with the increased utilization rates that you'd seen in the first two quarters of the year?

Yes, so there's some seasonality in particular like in Q2 where we had the PLAY Conference, which is the annual user conference we have. We typically see that in Q2. And then Q3 and Q4 are typically stronger quarters from a profitability perspective from Q2. And you've seen that over the last several years.

We're looking at margins being slightly better in Q4 over Q3. I wouldn't read too, too much into that in terms of that's the trend, if you will, going forward. It's just part and parcel of the user conference being in Q2 and then continuing to execute in Q3, Q4.

Okay, thank you.

Mike Latimore, Northland Capital Markets.

Great, thanks. I guess just following up on that last question, I guess, just to be clear, you feel like you're on track for an improving growth rate next year or just higher revenues next year?

We are not yet guiding next year. We're still working on our annual planning process, and we'll get to that in our next call. But fundamentally, our long-term -- and I think about this from a multiyear perspective -- our story is very consistent with everything we've been saying now for quite a few quarters. I won't say exactly, but quite a few quarters we've been saying we believe there's a very large opportunity, we believe we can accelerate revenue growth, and that we believe we can do that while remaining profitable and improving our profitability over time.

Okay, good. And then in terms of the, [I guess,] the 55 customer adds, how many of those customers are on these multiyear deals?

I don't think we've broken that out. So it's a good number. It's obviously a number that's up. But I don't think we've broken that out per se.

Okay. And can you give me the final headcount at the end of the third quarter?

Headcount for the third quarter was 471.

Okay. And that's up from 450 -- is that right, second quarter?

About that, yes. 451, I think it was, or 450, yes.

All right. And then in terms of the fourth-quarter guidance, what do you assume from an overage standpoint? Do you assume kind of a normal overage, or do you not assume much overage? Just a little clarity on that would be great.

Well, we always assume overages over quarter. Of course, they're hard to predict. And so we are not assuming the same level of overages that we had in Q3 in Q4. We don't guide the overages on a quarterly basis, but I would just say that we're not expecting them to be as high as they were in Q3.

And just last, you announced two large deals in the second quarter, when do you think those'll start coming into revenue?

I think that they have both started to come into revenue. That is typically the case. We sign contracts, let's say it's an annual contract, we recognize revenue on a ratable basis, on a daily basis from when we sign the contract.

Now that said, with some of these large contracts that are multiyear deals, there's sort of a ramp built it. So you don't necessarily get all that revenue impact in that first year. That's something that you'll start to see more of in the second year. So for example, a deal that we signed in, say, Q2, we'll see certainly some revenue from the say we signed it for the first 12 months, and then we might see a step function as we recognize the year two revenue on a ratable basis, on a daily basis for year two. Does that make sense?

Yes, yes. Thanks a lot.

There are no further questions at this time. I'll turn the call back over to Mr. Mendels for any closing remarks.

Well, I want to thank everyone again for joining us on the call. We had a strong Q3. We're pleased with the momentum. I think in particular we're pleased with the innovation and new products that we've been able to bring to market. And we're excited. We've got a lot of hard work in front of us in Q4. But we're excited about our long-term opportunities and look forward to talking to you again in about 90 days. Thank you very much.

Ladies and gentlemen, this does conclude our teleconference for today. We thank you for your time and participation, and you may disconnect your lines at this time. Have a wonderful rest of the day.