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Edited Transcript of QUMU earnings conference call or presentation 5-May-20 8:30pm GMT

Q1 2020 Qumu Corp Earnings Call

Minneapolis May 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Qumu Corp earnings conference call or presentation Tuesday, May 5, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Gallagher Ristow

Qumu Corporation - CFO

* Vernon J. Hanzlik

Qumu Corporation - President, CEO & Director

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Qumu First Quarter 2020 Conference Call. (Operator Instructions) Please note that today's call is being recorded. Thank you. Mr. David Ristow, Chief Financial Officer. You may begin.

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David Gallagher Ristow, Qumu Corporation - CFO [2]

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Good afternoon, everyone, and thank you for joining our First Quarter 2020 Earnings Conference Call. After the market closed, we issued a press release announcing our results for the first quarter ended March 31, 2020, a copy of which is available on our Investor Relations section of our website at qumu.com.

We will make certain statements today with respect to our expected financial results, go-to-market strategy and efforts designed to increase our traction and penetration with customers as well as our proposed merger with Synacor that was announced on February 11, 2020. These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially.

Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Please refer to our SEC filings, specifically our Form 10-K and our financial results press release for a more detailed description of risk factors that may affect our results. Our financial results press release also includes a description of the risk factors that may affect the anticipated timing of the proposed merger, completion of benefits of the proposed merger, anticipated future combination, combined operations and offerings and expected synergies to be achieved.

During our call today, we will discuss adjusted EBITDA, a non-GAAP measure in our press release and our filings with the SEC, each of which is posted on our website. You will find additional disclosures regarding this non-GAAP measure, including a reconciliation of this measure with its comparable GAAP measure. Non-GAAP financial measures are not intended to be considered in isolation from or as substitute for or superior to GAAP results.

We encourage you to consider all measures when analyzing the company's performance. Please note that in connection with the anticipated merger with Synacor, which we announced on February 11, we will not be hosting a question-and-answer session at the conclusion of our remarks.

So with that, I will turn the call over to Vern Hanzlik, President and CEO of Qumu.

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Vernon J. Hanzlik, Qumu Corporation - President, CEO & Director [3]

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Thank you, Dave, and welcome, everyone. To begin, I would like to reflect on how the COVID-19 pandemic is affecting our business. But first, I want to acknowledge the devastating impact that pandemic has had on human health and on people's lives and livelihoods around the globe.

I speak on behalf of Qumu as an organization when I say, we hope everyone can return to normal work and personal activity soon. With this in mind, the current and unprecedented health event has become a change agent for enterprises, driving them to use video in an effort to maintain collaboration, engagement and overall business continuing. And even when this particular crisis is over, I believe the world will reset a new normal, where video will not only be the expected, but in many cases, the preferred way to communicate.

Going forward, organizations will be more critical of where, when and how much they ask people to travel for business. As a video-first company, Qumu has been very fortunate in being able to quickly and easily adapt the work from home recommendations and mandates at all our locations globally. Because of the nature of our business, the use of our own technology, we are fully operational on a global scale, with every team member working from home. Of course, we are also fortunate to be in a position to support and lead our customers in the same transition, ensuring that employees are safe, productivity and shelter in place.

Our Global 2000 customer base is mobilizing and building out their video infrastructure to support thousands and in many cases, tens or even hundreds of thousands of concurrent video users as they operate under travel restrictions and mandatory work from home policies. As you know, video conferencing solutions like Zoom, Webex, Teams are now everyday tools for small group meetings but organizations are learning quickly that the standard video conferencing apps are not enough. These tools were not built and were never intended to be used for medium or large-scale live webcasting for managing massive video content libraries for streaming on-demand videos and meetings at scale.

But this is where Qumu technology fills the gap. Our platform seamlessly extends video conferencing, providing not in only critical large-scale webcasting, but also robust video content management and enterprise-grade security, And the same level of security that dozens of Global 2000 financial institutions, Fortune 500 health care organizations and government agencies currently benefit from as a Qumu customer. Over the last several months, the video marketplace has shifted, and video conference had become the new front-end for self-service broadcast. And for those who are interested, we provide multiple examples of these trends on our website.

These events, combined with the robust capability of the Qumu's platform, has set the stage for what we believe will be a very strong revenue performance in the balance of the year. The increasing demand for video in the Enterprise was evident in the last week of the first quarter of 2020 and has continued into the current quarter. As we announced at the end of March, the usage of our Qumu Cloud platform is up 30x from normal levels during peak business hours. COVID-19-related challenges are not only fueling increased usage but also driving new projects as customers upgrade their infrastructures. For example, an aircraft manufacturing customer is now conducting large-scale live webcast that pays 150 events per year.

A large health care system, currently a Qumu client, has reported nearly 3 million views of its on-demand videos for keeping staff and patients current on COVID-19 information. Five Qumu customers are actively converting to hybrid cloud deployments. And finally, through our partnership with BT, we are seeing increased activity in both live video and audio streaming. Additionally, an existing Qumu customer is expanding and hardening their video infrastructure to support 325,000 corporate and retail employees as well as increasing the capacity for external video communications. Although we are able to recognize only a small portion of that multimillion-dollar deal as revenue in the first quarter. This contract will provide significant revenue for the second quarter as well as the second half of 2020. Given our COVID-19 driven customer deals in Q1, our Q2 activity to date, our visibility in our near-term pipeline, we have confidence in our revenue guidance for fiscal year 2020.

In addition to expanding our footprint with existing customers, Qumu closed 7 new customers and 2 new cloud deployments during the quarter, including SaaS customers like PaySafe, NTT and a large Canadian bank. This, combined with pipeline growth, puts Qumu on track to meet its objective at 50 new logos to our customer base in 2020.

Now a few talking points about increased sales and marketing activity. We're seeing an increase in existing customers who are investigating expanding their Qumu platform or adding cloud or converting to our cloud hybrid solution. Along with dynamically higher web traffic, there has been an uptick in both free trial requests and submissions of online inquiry forms, which hit an all-time high several weeks ago. And finally, we received the largest number of views ever on 31st March press release -- global press release about a dynamic increase in usage on our Qumu Cloud platform.

With that overview, I'll hand the call back over to Dave to provide further financial details for the first quarter 2020.

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David Gallagher Ristow, Qumu Corporation - CFO [4]

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Thank you, Vern. COVID-19 has served as both an unfortunate and unprecedented change agent, which has led to both increased bookings and sales-related activity for Qumu that gives us confidence for 2020.

We have also been working to improve our balance sheet with the purchase of ESW's warrant. I'll begin with a brief commentary on some of our financial highlights. First quarter 2020 revenue was $6.2 million compared to $7.1 million for the first quarter 2019. Sales mix and timing of revenue recognition contributed to the decrease as the first quarter 2019 included revenue from large term software license renewals, resulting in a year-over-year term software revenue decrease of $1.5 million. Revenue from term software licenses is recognized upfront in accordance with ASC 606.

Gross margin was 66.5% for the first quarter 2020 compared to 78.3% for the first quarter 2019. As the sales mix for 2020 period included a higher mix of appliance revenue, which generally has lower margins and the mix for the 2019 period included a higher mix of term license revenue, which generally has higher margins. Additionally, the first quarter of 2020 included outsourced professional services expense for certain customer-specific projects in the quarter, which negatively impacted services gross margin.

Due to our COVID-related contracts closing at the end of the quarter, Q1 revenue backlog is $5.6 million, a significant portion of which will be recognized in the second quarter. Net loss for the quarter was $2.9 million (sic) [$2.7 million] compared to the net loss of $950,000 for Q1 2019. Net loss for the first quarter 2020 was unfavorably impacted by transaction-related expenses totaling $811,000, included in general and administrative expenses related to Qumu's merger agreement with Synacor, which is anticipated to close mid-2020.

Adjusted EBITDA loss for the first quarter of 2020 was $1.2 million compared to adjusted EBITDA income for 2019 of $210,000. The $811,000 of transaction-related expenses are excluded in the determination of adjusted EBITDA. Please refer to our press release for a reconciliation of adjusted EBITDA to net loss.

Cash and cash equivalents totaled $8.4 million as of March 31, 2020, compared to $10.6 million as of December 31, 2019. Customer retention was 90% for the first quarter of 2020. And subsequent to March 31, 2020, Qumu entered into an agreement to cancel its outstanding warrant with ESW Holdings, Inc. effective May 1, 2020, for a deferred purchase price of $1.83 million reflected in a note maturing on April 1, 2020, and bearing no interest.

The warrant to ESW Holdings was for the purchase of up to 925,000 shares of Qumu's common stock and was subject to a minimum cash settlement provision in the event of a change in control transaction referred to as a fundamental transaction, which included Qumu's proposed merger with Synacor, Inc. The payment obligations of the note will accelerate upon a fundamental transaction, which includes Qumu's proposed merger with Synacor, and Qumu would be required to pay an additional $150,000 to ESW Holdings upon the closing of a fundamental transaction. The fair value of the warrant instrument has historically been reported as a liability in Qumu's consolidated financial statements and for certain historical reporting periods since its issuance, including the first quarter 2020. The warrant instrument was dilutive in the calculation of earnings per share.

And for our business outlook, as Qumu considers its revenue outlook for the balance of 2020, we are cautious due to the unknown financial impact that COVID-19 will have on economies and enterprises around the world. However, based on the strength of our first quarter 2020 and second quarter 2020 to date customer contracts and Qumu's pipeline, management expects 2020 revenue to be approximately $28 million as compared to $25.4 million in 2019.

In consideration of Qumu's anticipated merger with Synacor, management is not providing guidance regarding profitability or any other metric for the full year 2020. Qumu will continue to assess the revenue outlook for the second half of the year as more information becomes available on customer ordering trends and economic disruption caused by COVID-19. For further detail on the anticipated transaction, we encourage you to review our recent SEC filings, which can be found on the Investor Relations section of our website.

That concludes my remarks, and I'll turn it back over to Vern for some closing comments. Back to you, Vern.

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Vernon J. Hanzlik, Qumu Corporation - President, CEO & Director [5]

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Thanks, Dave. To wrap up, Qumu's business remains strong and given the current sales activity, we anticipate we will come through the current global crisis stronger than ever. Interest in our platform is high by multiple measures. Our sales pipeline has grown by more than 30%. We have significant revenue backlog, and our customer retention remains high at 90%.

Going forward, our focus will be as follows: to further capitalize on the dramatic growth happening in video as our customers and prospects assume a new normal that will be -- we believe, will extend far beyond the COVID-19 pandemic; to stay laser-focused on solving tough problems related to video in the Enterprise; to maintain customer retention above 90% for the year; to continue to innovate on our Enterprise video platform and realize all defined opportunities; to grow and monetize our existing channel by building upon established partnerships with BT and others; execute on our direct sales strategy and continue to expand our footprint within existing customer base while bringing net new customers within our defined markets; and finally, to improve our financial results, building on our strong business fundamentals.

That concludes our comments. Thank you, again, everyone, for joining us today, and have a great day.

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Operator [6]

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This concludes today's conference call. You may now disconnect.