Brightcove Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(in thousands, except share and per share data, unless otherwise noted)

1. Business Description and Basis of Presentation

Business Description

Brightcove Inc. (the Company) is a leading global provider of cloud services for video which enable its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner.

The Company is headquartered in Boston, Massachusetts and was incorporated in the state of Delaware on August 24, 2004.

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form10-K for the year ended December 31, 2018.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, other than the changes to accounting for leases as described in Note 14, the unaudited condensed consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2018 contained in the Company’s Annual Report on Form10-K and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position for the three and nine months ended September 30, 2019 and 2018. These interim periods are not necessarily indicative of the results to be expected for any other interim period or the full year.

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure, other than those disclosed in this Report on Form10-Q.

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the condensed consolidated financial statements. As described in footnote 14, the Company implemented a significant accounting policy upon the adoption of AccountingStandards Update (“ASU”) 2016-02, Leases (Topic 842), Amendments to the FASB Accounting Standards Codification (“ASC 842”). As of September 30, 2019, other than the changes to the accounting for leases, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form10-K for the year ended December 31, 2018, have not changed.

2. Business Combinations

Ooyala

On April 1, 2019, pursuant to an Asset Purchase and Sale Agreement (the “Purchase Agreement”), the Company completed its acquisition of the online video platform assets of Ooyala, Inc. and certain of its subsidiaries (“Ooyala”), a provider of cloud video technology, in exchange for common stock of the Company and cash (the “Ooyala Acquisition”). At the closing, the Company issued 1,056,763 unregistered shares of common stock of the Company valued at $8.9 million and paid $2.6 million in cash Pursuant to the Purchase Agreement, approximately $2.65 million of the cash consideration was placed into an escrow account to secure payment of any claims of indemnification for breaches or inaccuracies in the Sellers’ representations and warranties, covenants and agreements.

The Ooyala Acquisition was accounted for using the purchase method of accounting in accordance with Accounting Standards Codification 805 — Business Combinations. Accordingly, the results of operations of Ooyala have been included in the accompanying condensed consolidated financial statements since the date of acquisition. The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the Ooyala Acquisition, which remain preliminary as of September 30, 2019, and using assumptions that the Company’s management believes are

reasonable given the information currently available. The Company is in the process of completing its valuation of its intangible assets, accounts receivable, deferred revenue and the valuation of the acquired deferred tax assets and liabilities. The final allocations of the purchase price to intangible assets, accounts receivable, deferred revenue, goodwill and any deferred tax assets and liabilities may differ materially from the information presented in these unaudited condensed consolidated financial statements.

The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. Definitive allocations are being performed and finalized based on certain valuations and other studies performed by the Company with the services of valuation professionals.

During the three and nine months ended September 30, 2019, the Company incurred $2.0 million and $7.6 million, respectively, of merger-related costs related to the Ooyala Acquisition.

The excess of the purchase price over the estimated amounts of net assets as of the effective date of the acquisition was allocated to goodwill in accordance with the accounting guidance. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Ooyala Acquisition. These benefits include the acquired workforce and with the Company’s direct sales force and larger channel coverage, the Company anticipates significant cross-selling opportunities. The goodwill is expected to be deductible for tax purposes.

The total purchase price for Ooyala has been allocated as follows:

The following are the identifiable intangible assets acquired and their respective useful lives, as determined based on preliminary valuations:

The preliminary fair value of the intangible assets has been estimated using the income approach in which theafter-tax cash flows are discounted to present value. The cash flows are based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital.

The estimated amortization expense for 2019 and for each of the five succeeding years and thereafter is as follows:

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of the Company and Ooyala, on a pro forma basis, as though the Company had acquired Ooyala at the beginning of the periods presented. The pro forma information for all periods presented also includes the effects of business combination accounting resulting from the acquisition.

Revenue from the Ooyala Acquisition for the three and nine months ended September 30, 2019 was $5.9 million and $12.1 million, respectively. Net income from the Ooyala Acquisition for the three and nine months ended September 30, 2019 was $1.1 million and $1.4 million, respectively.

Other Business Combinations

On August 1, 2019, pursuant to a Share Purchase Agreement (the “SPA”), the Company completed its acquisition of a company and its subsidiary (the “August Acquisition”) in exchange for common stock of the Company and cash. Consideration was comprised of: (a) 270,686 unregistered shares of common stock of the Company valued at $3.4 million, of which 40,603 were held back to secure payment of any claims of indemnification for breaches or inaccuracies in the sellers’ representations and warranties, covenants and agreements, (b) approximately $3.3 million in cash, of which $488 was held back to secure payment of any claims of indemnification for breaches or inaccuracies in the Sellers’ representations and warranties, covenants and agreements, and (c) approximately $1 million in cash for cash acquired as part of the transaction.

The August Acquisition was accounted for using the purchase method of accounting in accordance with Accounting Standards Codification 805 — Business Combinations. Accordingly, the results of operations of the acquired company have been included in the accompanying condensed consolidated financial statements since the date of acquisition. The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the August Acquisition, which remain preliminary as of September 30, 2019, and using assumptions that the Company’s management believes are reasonable given the information currently available. The Company is in the process of completing its valuation of its intangible assets, accounts receivable, deferred revenue and the valuation of the acquired deferred tax assets and liabilities. The final allocations of the purchase price to intangible assets, accounts receivable, deferred revenue, goodwill and any deferred tax assets and liabilities may differ materially from the information presented in these unaudited condensed consolidated financial statements. Additionally, the Company is in the process of evaluating the accounting of the deferred consideration for the amounts held back for security against indemnification, as well as standard representations and warranties made by the seller.

During the three and nine months ended September 30, 2019, the Company incurred $500 of merger-related costs related to the August Acquisition.

The excess of the purchase price over the estimated amounts of net assets as of the effective date of the acquisition was allocated to goodwill in accordance with the accounting guidance. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the August Acquisition. These benefits include the acquired workforce and opportunities to expand the Company’s offerings in target market segments. The goodwill is expected to benon-deductible for tax purposes.

The total purchase price for the August Acquisition has been allocated as follows:

The following are the identifiable intangible assets acquired and their respective useful lives, as determined based on preliminary valuations:

The preliminary fair value of the intangible assets has been estimated using the income approach in which theafter-tax cash flows are discounted to present value. The cash flows are based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital.

The estimated remaining amortization expense for 2019 and for each of the five succeeding years and thereafter is as follows:

Pro forma results of operations for the August Acquisition have not been presented because the effect of the acquisition is not material to the Company’s consolidated financial results. Revenue and earnings attributable to acquired operations since the date of the acquisition are included in the Company’s consolidated statements of operations.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2019 were as follows:

3. Revenue from Contracts with Customers

The Company primarily derives revenue from the sale of its online video platform, which enables its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner. Revenue is derived from three primary sources: (1) the subscription to its technology and related support; (2) hosting, bandwidth and encoding services; and (3) professional services, which includeinitiation, set-up and customization services.

The following summarizes the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers.

Revenue recognized during the three and nine months ended September 30, 2019 from amounts included in deferred revenue at the beginning of the period was approximately $6.4 million and $37.6 million, respectively. During the three and nine months ended September 30, 2019, the Company did not recognize a material amount of revenue from performance obligations satisfied or partially satisfied in previous periods.

The assets recognized for costs to obtain a contract were $5.7 million as of September 30, 2019 and $5.9 million as of December 31, 2018. Amortization expense recognized during the three and nine months ended September 30, 2019 related to costs to obtain a contract was $1.8 million and $5.5 million, respectively. Amortization expense recognized during the three and nine months ended September 30, 2018 related to costs to obtain a contract was $1.9 million and $5.7 million, respectively.

Transaction Price Allocated to Future Performance Obligations

As of September 30, 2019, the total aggregate transaction price allocated to the unsatisfied performance obligations for subscription and support contracts was approximately $125.7 million, of which approximately $100.6 million is expected to be recognized over the next 12 months. The Company expects to recognize substantially all of the remaining unsatisfied performance obligations by December 2022.

4. Concentration of Credit Risk

The Company has nosignificant off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and trade accounts receivable. The Company maintains its cash and cash equivalents principally with accredited financial institutions of high credit standing. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits. The Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.

At September 30, 2019 and December 31, 2018, no individual customer accounted for 10% or more of accounts receivable, net. For the three and nine months ended September 30, 2019 and 2018, no individual customer accounted for 10% or more of total revenue.

5. Concentration of Other Risks

The Company is dependent on certain content delivery network providers who provide digital media delivery functionality enabling theCompany’s on-demand application service to function as intended for the Company’s customers andultimate end-users. The disruption of these services could have a material adverse effect on the Company’s business, financial position, and results of operations.

6. Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Management determines the appropriate classification of investments at the time of purchase,and re-evaluates such determination at each balance sheet date. The Company did not have any short-term or long-term investments at September 30, 2019 or December 31, 2018.

Cash and cash equivalents primarily consist of cash on deposit with banks and amounts held in interest-bearing money market accounts. Cash equivalents are carried at cost, which approximates their fair market value.

Cash and cash equivalents as of September 30, 2019 consist of the following:

Cash and cash equivalents as of December 31, 2018 consist of the following:

7. Net Loss per Share

The Company calculates basic and diluted net loss per common share by dividing the net loss by the number of common shares outstanding during the period. The Company has excluded other potentially dilutive shares, which include warrants to purchase common stock and outstanding common stock options and unvested restricted stock units, from the number of common shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses incurred. The following outstanding common shares have been excluded from the computation of dilutive net loss per share as of September 30, 2019 and 2018 (in thousands).

8. Fair Value of Financial Instruments

The following tables set forth the Company’s financial instruments carried at fair value using the lowest level of input as of September 30, 2019 and December 31, 2018:

9. Stock-based Compensation

The weighted-average fair value of options granted during the three months ended September 30, 2019 and 2018 was $5.21 and $3.89 per share, respectively. The weighted-average fair value of options granted during the nine months ended September 30, 2019 and 2018 was $4.54 and $4.16 per share, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:

The Company recorded stock-based compensation expense of $1.7 million and $1.5 million for the three months ended September 30, 2019 and 2018, respectively. The Company recorded stock-based compensation expense of $4.5 million and $5.0 million for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, there was $21 million of unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a weighted-average period of 2.76 years. The following table summarizes stock-based compensation expense as included in the consolidated statement of operations for the three and nine months ended September 30, 2019 and 2018:

The following is a summary of the stock option activity during the nine months ended September 30, 2019.

The following table summarizes the restricted stock unit activity during the nine months ended September 30, 2019:

10. Income Taxes

For the three months ended September 30, 2019 and 2018, the Company recorded income tax expense of $171 and $144, respectively. For the nine months ended September 30, 2019 and 2018, the Company recorded income tax expense of $521 and $410, respectively. The income tax expense relates principally to the Company’s foreign operations.

The Company is required to compute income tax expense in each jurisdiction in which it operates. This process requires the Company to project its current tax liability and estimate its deferred tax assets and liabilities, including net operating loss (“NOL”) and tax credit carry-forwards. In assessing the ability to realize the net deferred tax assets, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

The Company has provided a valuation allowance against its remaining U.S. net deferred tax assets as of September 30, 2019 and December 31, 2018, based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences. The Company maintains net deferred tax liabilities for temporary differences related to its foreign subsidiaries.

11. Commitments and Contingencies

Legal Matters

On January 30, 2019, Uniloc 2017 LLC (“Uniloc”) filed a complaint against the Company and its subsidiary, Brightcove Holdings, Inc. in the United States District Court for the District of Delaware. The complaint alleges that the Company infringed four patents and seeks monetary damages and other relief. The Company answered the complaint on March 25, 2019 and Uniloc filed an amended complaint on April 9, 2019. The Company filed an answer to the amended complaint on April 23, 2019. The Company cannot yet determine whether it is probable that a loss will be incurred in connection with this complaint, nor can the Company reasonably estimate the potential loss, if any.

On or about June 24, 2019, Dynamic Data Technologies, LLC (“DDT”) filed a complaint against the Company and its subsidiary, Brightcove Holdings, Inc., in the United States District Court for the District of Delaware. The complaint alleges that the Company infringed patents owned by DDT and seeks monetary damages and other relief. The Company filed a motion to dismiss the complaint and that motion is pending review by the court. The Company cannot yet determine whether it is probable that a loss will be incurred in connection with this complaint, nor can the Company reasonably estimate the potential loss, if any.

The Company, from time to time, is party to litigation arising in the ordinary course of business. Management does not believe that the outcome of these claims will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company based on the status of proceedings at this time.

Guarantees and Indemnification Obligations

The Company typically enters into indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses and costs incurred by the indemnified party, generally the Company’s customers, in connection with patent, copyright, trade secret, or other intellectual property or personal right infringement claims by third parties with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual after execution of the agreement. Based on when customers first subscribe for the Company’s service, the maximum potential amount of future payments the Company could be required to make under certain of these indemnification agreements is unlimited, however, more recently the Company has typically limited the maximum potential value of such potential future payments in relation to the value of the contract. Based on historical experience and information known as of September 30, 2019, the Company has not incurred any costs for the above guarantees and indemnities. The Company has received requests for indemnification from customers in connection with patent infringement suits brought against the customer by a third party. To date, the Company has not agreed that the requested indemnification is required by the Company’s contract with any such customer.

In certain circumstances, the Company warrants that its products and services will perform in all material respects in accordance with its standard published specification documentation in effect at the time of delivery of the licensed products and services to the customer for the warranty period of the product or service. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes the estimated fair value of these agreements is immaterial.

12. Debt

On December 14, 2018, the Company entered into an amended and restated loan and security agreement with a lender (the “Loan Agreement”) providing for up to a $30.0 million asset based line of credit (the “Line of Credit”). Under the Line of Credit, the Company can borrow up to $30.0 million. Borrowings under the Line of Credit are secured by substantially all of the Company’s assets, excluding its intellectual property. Outstanding amounts under the Line of Credit accrue interest at a rate as follows: (i) for prime rate advances, the greater of (A) the prime rate and (B) 4%, and (ii) for LIBOR advances, the greater of (A) the LIBOR rate plus 225 basis points and (B) 4%. Under the Loan Agreement, the Company must comply with certain financial covenants, including maintaining a minimum asset coverage ratio. If the outstanding principal during any month is at least $15.0 million, the Company must also maintain a minimum net income thresholdbased on non-GAAP operating measures. Failure to comply with these covenants, or the occurrence of an event of default, could permit the lenders under the Line of Credit to declare all amounts borrowed under the Line of Credit, together with accrued interest and fees, to be immediately due and payable. The Company was in compliance with all covenants under the Line of Credit as of September 30, 2019 and there are no borrowings outstanding as of September 30, 2019.

13. Segment Information

Geographic Data

Total revenue from unaffiliated customers by geographic area, based on the location of the customer, was as follows:

North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers located in the United States was $23,162 and $20,521 during the three months ended September 30, 2019 and 2018, respectively. Revenue from customers located in the United States was $67,534 and $63,345 during the nine months ended September 30, 2019 and 2018, respectively. Other than the United States and Japan, no other country contributed more than 10% of the Company’s total revenue during the three and nine months ended September 30, 2019 and 2018.

As of September 30, 2019 and December 31, 2018, property and equipment at locations outside the U.S. was not material.

14. Recently Issued and Adopted Accounting Standards

Effective January 1, 2019, the Company adopted ASC 842, which replaced the existing guidance for leases using the transition method introducedby ASU 2018-11, which adjusts the January 1, 2019 balance for the cumulative effects of the change in accounting.

Under ASC 842, aright-of-use asset and lease liability is recorded for all leases and the statement of operations reflects the lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASC 842 is calculated using the applicable incremental borrowing rate at the date of adoption. The adoption of the new standard resulted in the recording ofright-of-use assets and lease liabilities of $19.6 million and $20.9 million, respectively, as of January 1, 2019. Additionally, the Company reversed its deferred rent liability of $1.3 million as a result of the adoption. The adoption of the lease standard did not result in a cumulativecatch-up adjustment to the opening balance of retained earnings.

The new standard provided various practical expedients, which were assessed to determine the ultimate impact of the new standard upon adoption. The Company elected the package of practical expedients, which permits the Company to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases and (3) any initial direct costs for any existing leases as of the effective date. The Company also elected the practical expedients to not apply the recognition requirements in the standard to a lease that at commencement date has a lease term of twelve months or less and does not contain a purchase option that it is reasonably certain to exercise and to not separate lease and relatednon-lease components.

The Company leases its facilities undernon-cancelable operating leases.Right-of-use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease.Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the

lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Many of the Company’s lessee agreements include options to extend the lease, which are not included in the minimum lease terms unless they are reasonably certain to be exercised.

The Company’s operating lease expense was $2 million and $5.8 million for the three and nine months ended September 30, 2019. The Company’s operating lease expense was $1.9 million and $5.9 million for the three and nine months ended September 30, 2018, respectively.

During the second quarter of 2019, the Company entered into a new lease in its Singapore location with a lease liability of $779.

The weighted-average remainingnon-cancelable lease term for our operating leases was three years at September 30, 2019. The weighted-average discount rate was 4.0% at September 30, 2019.

The Company’s operating leases expire at various dates through 2024. The following shows the undiscounted cash flows for the remainder of 2019 and remaining years under operating leases at September 30, 2019:

15. Restructuring

During the second quarter of 2019, the Company committed to an action to restructure certain parts of the Company with the intent of aligning skills with the Company’s strategy and facilitating cost efficiencies and savings. As a result, certain headcount reductions were necessary. The Company incurred approximately $752 in restructuring charges during the second quarter of 2019. The restructuring charges reflect post-employment benefits and are reflected in theCondensed Consolidated Statements of Operationsas follows: $186 – Cost of subscription and support revenue; $107 - Cost of professional services and other revenue; $421 – Sales and Marketing; and $38 – Research and Development. The Company has paid all amounts due relating to the restructuring and does not expect to incur any additional restructuring charges related to this action.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form10-Q and our Annual Report on Form10-K for the year ended December 31, 2018.

Forward-Looking Statements

This Quarterly Report on Form

Forward-looking statements in this Quarterly Report on Form