Qumu Corporation
Q1 2022 Earnings Call Transcript

Published: 12 May 2022

[Operator:]

Good day and welcome to Qumu’s First Quarter 2022 Conference Call. My name is Eli, and I’ll be your operator this afternoon. Joining us is Qumu’s President and CEO, Rose Bentley; CFO, Tom Krueger; and Matt Glover from Gateway Investor Relations. I would now like to turn the call over to Matt Glover. Sir, you may begin.

[Matt Glover:]

Thanks operator, and good afternoon, everyone. After the market closed today, Qumu issued a press release announcing its financial results for the first quarter ended March 31, 2022, a copy of which is available in the Investor Relations section of the company’s website. During today’s call, management will make certain statements with respect to the company’s expected financial results, company’s go-to-market strategy and efforts designed to increase the company’s traction and penetration with customers. These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note these forward-looking statements reflect management’s opinions only as of the date of this call, and the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Qumu’s SEC filings, specifically Form 10-Q financial results press release for a more detailed description of risk factors that may affect the company’s results. During the call today, management will discuss adjusted EBITDA, a non-GAAP financial measure. In the company’s press release and filings with the SEC, both of which are posted on the company’s 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, a substitute for, or superior to GAAP results. The company encourages you to consider all measures when analyzing its performance. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section site of Qumu’s website. Now I will turn the call over to Qumu’s President and CEO, Rose Bentley. Rose?

[Rose Bentley:]

Thank you, Matt, and good afternoon everyone and thank you joining us today. It’s great to be here with you as Qumu’s new president and CEO. As many of you know, I joined Qumu as Chief Operations Officer in March of 2021. Since joining the company, I have played a key role in the development and execution of Qumu’s strategic roadmap, which emphasizes growing our cloud business, leveraging innovative technology, and scaling our SaaS revenue base. As COO, I spearheaded Qumu’s partner led sales motion and customer experience efforts, which continue to be a critical element in our ability to secure new logos, deepen customer relationships, and drive higher retention and cloud conversion. My appointment will ensure absolute continuity in leadership and execution of our strategy and is a direct reflection of the succession plan we have had in place for several months. For those of you that I haven’t had the pleasure of meeting prior to Qumu, I held leadership roles at several SaaS technology companies. Most recently, I led operations and strategy for Teradata, a $1.8 billion revenue analytics company, where I played an important part of the company’s successful transition from a perpetual license business model to a subscription based cloud first revenue model. Teradata’s transition was in many ways similar to the transformation currently underway here at Qumu, and has given me a playbook to reference along this journey. Looking ahead, I appreciate the opportunity to lead Qumu into the next stage of development. I also look forward to building stronger relationships with our existing partners and customers, as well as making new connections with our investors and other stakeholders over the coming months. Switching gears to our most recent performance. During the first quarter, we landed several new wins and customer expansions both of which support our view that Qumu’s transformation is well underway. Our partner led sales motions are working, demonstrated by the fact that 75% of our wins in Q1 were through channel partners, including Kollective, BT, Socialive. The traction we realized also demonstrates our execution against strategy around customers, product adoption, innovation and partners. Our performance is now also translating into growing SaaS metrics and KPIs. As we’ve mentioned previously, our team is committed to driving cloud business and scaling our SaaS revenue base. We expect this trend to continue in 2022 and beyond. Highlighting our ongoing success is the 15% year-over-year SaaS revenue growth we generated in the first quarter, bringing our total SaaS revenue as a percentage of total revenue to 54%, up from 46% in the prior quarter and 40% in Q1 of last year. On top of this, our SaaS revenue as a percentage of reoccurring revenue continues to grow up to 60% in Q1 compared to 56%, in the prior quarter, and 46% in Q1 of last year. Additionally, our SaaS annual recurring revenue, or ARR, increased 10% year-over-year to a record 13 million. Our encouraging SaaS and reoccurring revenue growth is supported by our solid balance sheet, including 15.5 million of cash, a level that provides significant runway to execute our strategy. In addition to diligently managing our cash, the leadership team and I are continually looking for areas to optimize costs and drive efficiencies. I’ll now turn it over to our CFO, Tom to provide more detail on our Q1 financial performance. Tom?

[Tom Krueger:]

Thanks Rose. It’s a pleasure to be speaking with you today. Like last quarter, I will expand on a few items not already addressed by Rose or included in our earnings release this afternoon. The metrics that we use to measure the success of our SaaS transformation continue to move in the right direction. Now let’s look at them. As Rose mentioned, during Q1 subscription ARR increased 10% to $13.0 million from $11.8 million in Q1, 2021 and increased sequentially from $12.8 million in Q4, 2021. Our SaaS KPIs remain strong with gross retention rates or GRR at 88% at quarter end, and net retention rate for NRR at 107% at quarter end. Moving on to operating expenses and adjusted EBITDA a non-GAAP measure. Our transformation is also focused on rationalizing our cost structure and realizing efficiencies to reduce cash burn. Our total operating expenses in the first quarter of 2022 were $8.2 million down 3% sequentially, and 10% year-over-year. Going forward, we will reduce operating expenses as needed to align resources with Qumu’s strategic plan for the balance of 2022. Adjusted EBITDA a non-GAAP measure was a loss of $4.1 million in Q1, 2022 compared to a loss of $3.1 million in Q4, 2021. Net loss was $4.6 million for Q1, 2022 compared to a net loss of $3.8 million in Q4 of 2021. A reconciliation of adjusted EBITDA a non-GAAP measure to net loss a GAAP measure is included in earnings releases for the respective periods. Now, for the balance sheet, at the end of Q1, 2022 our cash position was as expected and tracking to plan at $15.5 million. We continue to tightly manage cash, and have seen an improvement to cash burn after initiating our cost optimization program in Q3 last year. We will continue to monitor expenses and leverage our available credit facility to align expenditures with bookings and collections on our path to becoming cash flow positive. As Rose mentioned, we believe that our cash position and available liquidity resources provide sufficient runway to execute our SaaS growth transformation strategy and get to cash flow profitability. That concludes my prepared remarks. I’ll turn it back over to Rose to discuss our strategy, key partnerships and our outlook. Rose?

[Rose Bentley:]

Thanks, Tom. I’m excited to lead Qumu at such an important moment for our company and for the industry. Digital transformation is driving the convergence of networking security and viewer experience as technology teams realize and recognize the challenges of delivering video in a complex enterprise environment. (ph) organizations globally are looking for reliable end-to-end video solution to solve these challenges. With this approach, enterprises can also help reduce operational costs by moving to a single cloud delivered solution. The need for an enterprise video platform that can provide the security, performance, features and ease of administration has never been greater. The progress we’ve been making with partners and strategic alliances continues to gain momentum demonstrated by the new customer and expansion sales to large enterprises we secured in the first quarter. Qumu’s recent wins span a variety of use cases, service (ph) cloud and hybrid solutions. A few of our notable new customers include a prominent global auto manufacturer and mobility provider, a leading multinational energy company, and top global banking and financial company. These great wins are the result of our dedication to the strategy, and collaboration with our partners. Perhaps our most important partnership we are currently working on is with AT&T, where we’ve collaborated to deliver a cloud based unified video experience for enterprises with video content management, streaming, enterprise signage and IPTV. This partnership is a major win for us, as it was a highly competitive selection process where Qumu’s technology and track record edged out much larger more well known brands. The innovative solution which is available to AT&T customers today brings video content management and streaming enterprise signage, IPTV, all enhanced by AT&T’s fiber and 5G networks and the Qumu video engagement platform together in one solution. The inclusion of management services helps to relieve the burden of deployment and day-to-day support, with AT&T video experts acting as the extension to IT and webcasting team. The feedback and response from AT&T’s customers are encouraging. We have a strong and healthy pipeline and expect to close our first deal together in Q2. In addition to AT&T we formed a joint reseller partnership with LiveU, a leader in the live video streaming and remote production solution. LiveU excels at delivering live, HD and 4K video, anytime, anywhere over the public internet. We have already successfully collaborated with LiveU on high stakes live events for major auto manufacturers, and one of the country’s largest healthcare companies. The expanded partnership enables our respective enterprise clients to produce, deliver, store and distribute broadcast quality video, including live video from corporate events. It also extends our ability to support enterprise customers wanting to produce and stream live events reliably and securely over the public internet. LiveU customers who are encouraged to gain access to the storage, content management, distribution and analytics capabilities of Qumu’s video engagement platform. We are really excited about this expanded relationship and expect to land several new wins together this year. We continue to see momentum with large enterprises deploying our video engagement platform. During Q1, we expanded the use of our platform in key accounts in the healthcare and manufacturing industries including a transition from on-prem to cloud and user expansion with one of the largest automakers in the U.S. Additionally, we signed new and expansion agreements for asynchronous video deployments, which added nearly a million new users to the platform in Q1. Leading organizations are recognizing that today’s environment requires reliable, secure, and scalable video communications to help them accelerate their digital transformation efforts. It’s rewarding to be part of their video strategy in this new era of hybrid work. Overall, our partner ecosystem allows us to deliver more value for our current customers by providing them with the end to end solution they need to deliver against their video needs. Partner with strategy helps our customers and keeps our customers at the heart of all that we do and every decision that we make, and on a path to leverage the best in breed video solutions at scale. Put together, our sales momentum not only reflects the success of our sales motions and innovative technology, but also our industry leading customer support, which continues to differentiate us in the market. Qumu recently won its fourth consecutive Stevie Award for customer service, a recognition that notable technology companies and brands like Google, Optum Health, Zappos.com, Wyndham Resorts and Aflac have won previously. We are proud of this award, as it is a direct reflection on our team’s unwavering commitment to the customer, and providing the best service possible day in and day out. As we continue to transform our business, we remain committed to generate robust SaaS revenue growth through new customer and expansion bookings source to the channel. Looking ahead, the progress we’re making with partners and strategic alliances is gaining traction. We’ve entered the second quarter with a robust pipeline that we look to capitalize on throughout the year. Our plan is supported by a solid cash position and available resources that provide sufficient runway to execute our growth strategy. Going forward, we continue to expect our SaaS recurring revenue as a percentage of our total reoccurring revenue to be at least 65% by the end of 2022 and 75% by the end of 2023. And we continue to expect the crossover to cash flow breakeven during 2023. The leadership team and I remain confident that Qumu will emerge as a subscription driven growth company, operating at scale, benefiting from high margin, reoccurring revenue, sustainable and growing cash flow and adjusted EBITDA and net income profitably. We will now take your questions. Eli, please provide the appropriate instructions.

[Operator:]

Thank you. Ladies and gentlemen, the Q&A is now open. And our first question is from Mike Latimore from Northland Capital. Your question please.

[Mike Latimore:]

Thank you very much. Hi Rose and Tom.

[Rose Bentley:]

Hey Mike?

[Mike Latimore:]

So AT&T the wins are interesting. How is AT&T kind of positioning it within its broader enterprise? Is there a specific sales force and selling it? What type of customers are they targeting, just kind of curious how they’re going to leverage you?

[Rose Bentley:]

Sure, sure. We were just together with AT&T at NAB and we are positioning this in their global video solutions portfolio. So you’ll see a lot of like sports media entertainment in there with their expectation that the IPTV and the streaming combination with the content management will deliver, right, that differentiated solution through and through that portfolio.

[Mike Latimore:]

Got it and they have sort of enterprise salespeople out selling it or how are they selling it?

[Rose Bentley:]

Correct. Yes correct. They are leveraging it through their enterprise. We’re focused on the enablement, building pipeline. And we’ve been doing this now for a little while with them. So the good news is we have the opportunity now to start capitalizing on the pipeline we’ve been building.

[Mike Latimore:]

Yes, great and obviously, the channel itself a big part of the bookings again here. I mean, how are you thinking about any further refinements on channel versus inside sales or direct sales kind of efforts? Is there a sort of on track with strategy now? Are there any kind of changes or refinements you want to have going forward here?

[Rose Bentley:]

Yes, Mike, we are on track with the current strategy. As you know, we shifted to the partner led strategy a few months ago, and we are committed to enabling our partners building the repeatable sales, motion with them, and continuing to find opportunities to win with them in the market, so no shifts in strategy now. We continue to find the importance in our direct sales motion, as well as our channel lead motion, and respecting that a lot of the current opportunities that we have in our pipe and our focus is around the channel.

[Mike Latimore:]

Can I just ask one, the sequential change in revenue, is that largely related to maintenance?

[Tom Krueger:]

Yes, that’s the significant decrease is just maintenance and the headwinds that we have talked about that we’re seeing with the business shifting away from on-prem to cloud. So it’s not unexpected. It’s very much exactly what we expected, actually coming into the year.

[Mike Latimore:]

And then, I guess, just last one on just kind of the broader market, you sound very positive on new wins and new bookings and interest level is high. I guess we had sort of a maybe a little bit of a COVID tailwind. Now we’re kind of coming out of COVID hybrid work environment. But it sounds like the interest level in the category in your technology is very high and if not improving that is my sense. But maybe you can add to that.

[Rose Bentley:]

Yes, certainly Mike. You are right. We’re seeing the trends, or the still all over the map. But you’re right leaning towards hybrid work and hybrid events because at the end of the day, we are not the same people in 2020 coming into 2022. And the higher expectation of employees in this hybrid environment is higher than it’s ever been. And if you look at just our usage on the platform, we’ve seen a 54% increase in total platform users year-on-year, which means that a lot of customers are just really using more and we’ve seen like a 2x increase in just a-sync and video views over the last three years. So the use cases are being validated by that I think also the adoption of video is being validated by how we’re seeing our customers increase their usage of even what they’re currently doing.

[Mike Latimore:]

So you said that the users are up 54% year-over-year, is that what you said?

[Rose Bentley:]

Correct.

[Mike Latimore:]

Okay. Great. All right. Thanks very much. Good luck this year.

[Operator:]

Thank you. All right. Our next one is from Jeff Van Rhee from Craig-Hallum. Your line is open.

[Jeff Van Rhee:]

Thanks for taking my questions. Rose on the SaaS side talk about the gross retention and maybe your expectations there. That’s my first. And then just from a competitive landscape question, sort of, when you get to the final phase, what is the primary differentiator? Why do you win if you win on the SaaS side right now?

[Rose Bentley:]

Yes, Certainly Jeff. Thanks for the question. So yes, I’m going to focus on your first one, which is why we’re winning. I spoke to a little bit in my prepared remarks, which is, it’s really around the customer service and support level that we provide. Our customers know we will go the extra mile, and we are down to that last leg, it really comes down to the reliability. And they know that we are the kind of partner for them that will ensure their success. That is our number one reason for winning at this point. The reliability comes from the team, support, customer success, but also of just the product itself. When I look at gross retention, which is your second part, or your first part of the question, yes, I mean, we expect gross retention to be a critical foundation for our growth and bookings throughout the year, and gross retention for us specifically, and we look at it in two ways. You’ve got the gross retention of the VCC business as well as the cloud business. We are seeing extremely high best in class, renewal and retention rates, specifically on the SaaS and cloud business. And with our strategic plan we expect to see from the VCC business, we are seeing at least a 70% and above retaining of that business, because customers are choosing, as we call it , to stay on the current version or upgrade, or potentially migrate to the cloud and that cloud conversions are what’s really leading to a lot of our SaaS growth as well. And then I’ll defer to Tom to if there’s anything else you’d like to add there, Tom?

[Tom Krueger:]

No, I would just say that the - the SaaS GRR gross retention that we saw in Q1 was in line with what we expected and we expect to be at 90% or above for the year. So expect to see that a little bit better and continue through the year.

[Jeff Van Rhee:]

Okay, fair enough. Last one, then I guess on a lot of new partnerships, a lot of things that you’re working on, you talked about the pipeline. You’ve got the offsets. Some of the prem folks going away, deferreds are coming down. You mentioned some new signings, but I guess the question would be, when do you think you can really move the needle with respect to revenue from or of deferred from these new partnerships? And what’s the timeline to impact here?

[Rose Bentley:]

Yes. I’ll jump into the partnerships specifically. And I’ll send it over to Tom. I mean, for us, we are tracking to plan right now. And considering where we’re at in our strategy the new business wins, we don’t necessarily get the credit for them until we have either converted a customer to the cloud, or we’ve seen the decline in the on-prem business, continue to stabilize. So we expect that intersection point of our new bookings plan, delivering against our retention plan, as well as the partners really start to take hold in Q3 and Q4 with our expectation coming into the year that we’ll be in a much better position around that breakeven point in cash. Tom is there anything you would like to add?

[Tom Krueger:]

No, I think just that every quarter we’re seeing more traction and improvement in our ability to attract new customers, which is just going to help us really grow that SaaS business. So what we saw here in the first quarter very much tracks with our plan.

[Jeff Van Rhee:]

Okay, great. Thanks for taking my questions. Best of luck.

[Operator:]

Thank you. At this time, this concludes the company’s question and answer session. If your question was not taken, please contact Qumu’s IR team at [e-mail]. I would now like to turn the call back over to Ms. Bentley for her closing remarks.

[Rose Bentley:]

Thank you, Eli and thank you everyone for joining our call this afternoon. Qumu is executing against a tremendous opportunity and look forward to working with the team to ensure Qumu reaches its full potential. I look forward to speaking to everyone again soon. Have a great day.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you all for your participation. You may now disconnect.