Qumu Corporation
Q3 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Sherman L. Black:]

Good day and good morning, I’ve met most of you guys, but I’m Sherman, I’m the CEO of the company and this is Jim Stewart. And Marion I know you said there will be a one on one. Angus if you like later, we can –

[Unidentified Company Representative:]

Yes. I’ve got two -- with my partners so I’m not sure.

[Sherman L. Black:]

Great, great. Well you know, we’ve got very small forms so feel free to interrupt me or ask questions and we’ll take your questions as we go. I’m not sure how much you know about us but we are a enterprise technology company focused on helping our customers delivering video and we’ll talk about all the things that is involved in delivering video but it’s something that’s happening. We are very excited about the market that we serve, we believe that thing is over billion dollars of opportunity that’s in front of us, the products that we have today. It’s growing at a fast rate. It’s also developing; it’s changing very, very rapidly. We are excited with the leadership position that we’ve been able to get recognition by all the major analysts. I’ll talk about that in a moment. Our customers have big names. Where we excel is inside large enterprise, customers’ financial services, pharma, technology companies, global and lots of employees, all knowledge workers that’s our sweet spot. Over the last couple of years, we put in place a leadership team that can really grow in scale as company. That’s one of the most important things we’ve done over the last couple of years. We’ve always had a great technology base. Now the markets happening, now we have the people to deliver on it. We’ve got a – we are very well funded. We have about $40 million in cash. I’ll show you our cash position. But we’ve recently added to that the sale of one of our businesses, the legacy business of the company, we sold it and we’re going full speed after this market. This is our sole focus going forward. And we’ve got some very aggressive growth plans for this year and as well as years ahead. So talking about the small market, I made a small statement that I think it is over billion dollars of opportunity and the analysts are just now starting to segment this market. It is just now starting to try and size it. But the reason we believe it’s got to be over a billion dollars is that we think videos are going to follow the core step other technologies have. Starts in the consumer space, migrates into the enterprise space. I’m sure all of you use one or more of these services which you see on the left hand side of the page. And as a consumer, you go to these services for entertainment of course, but you also go there to learn, you go there to Whatsapp with family members, with friends whatever, but it’s everything from a social environment to a learning environment to being entertained to engaging you. And that same activity is going transition into the enterprise work space. In fact, in this report, Cisco is saying that by the time we get to 2015, which is just a few months away, we believe that’s happening now, we have more video being moved inside the enterprise and any other content type and we certainly see that taking place. The thing that we believe is going be driving us is just the value of video inside the enterprise. You think about what’s happening in the companies today you’ve got workers that are globally distributed, we have more and more workers now working out of their homes and these are large companies with large campuses but because of technology access, because of the worker talent is trying to find the people you need, you can hire people wherever they are and people aren’t willing to move the way they used to move. So this globally distributed teams working together is growing at an expanding rate. We have more and more change taking place faster and faster and as leaders try to describe their vision, their strategy to employees explaining why we’re doing what we’re doing to give you progress updates on how we’re doing. To be able to put that into a memo and send it out is very cold and leaders want to be able to express their vision and want to be able to talk about how they are doing and do that in the form of a video because video is very transparent. It is engaging and it pulls people in and it makes the world seem like an much smaller place and when you think about these remote environment very, very clinical and we think that videos is here to stay, it’s going continue to grow. You may ask what exactly do you do? Why can’t I as an enterprise just go and use YouTube as a service because it sounds like that’s really all I need. Well, there a lot of challenges when companies start to implement video. The first question they ask is what’s at the front of most CIO’s minds today which is how do I ensure security? How will I make sure that right people, only the right people see this video that as I lay out a new product launch or I communicate a new strategy or why we made an acquisition even worse, why my company was accused of crime and I explain that to my employees, we really didn’t do that and here is it what it means or I explain my contribution on why I’m sorry we did that. They want to make sure that only right people see it because they don’t want this stuff on video so being able to tap into all the existing advancements inside the corporation around security and control access is extremely important around videos as well. In along the line security the other challenge one has today is that people bring their own tablets, they bring their own smart phones. In many cases you get an allowance, you go buy your own laptop or its BYOD, bring your own device, so how do I enable that trend to continue? Come on it, if you can’t find a chair, there’s one down in the front here. So, a lot of the challenges that the people are struggling with is how do I ensure that those are secured. So I need devices like mobile device management. They’ve made investments in those. There’s a lot of money going in that space, but I need my video platform added to that as well. A lot of companies are on premise, meaning their software has been deployed inside the data centre inside the company, but they are starting to move more and more things to the cloud and they don’t know how that investment is going change in the course of the next year or so a couple of years. And they want to partner with someone who has that flexibility; maybe I want to go on print, maybe I want to put it on cloud or maybe I want to hybrid. So they are looking for flexibility in those investments as they go forward. And then delivery is one of the biggest challenges with video. How do they get a great experience at the end point and that end point can be a lot of different things, it can be as we said a mobile phone, it could be a tablet, it could be a laptop, it could be inside a video conferencing room, it could be on you TV. How do I ensure a good user experience and the challenge of the video is delivering? If you’ve ever watched YouTube or Netflix on a Friday night unless you’ve got a really great network coming into your home you find that there’s a lot of bandwidth and buffering issues. Imagine being on a campus with 5,000 people and all 5,000 onetime want to watch the same announcement that CEO just made and it was put out there in a live manner. And speaking of live that’s also a request they have, as we want to do live broadcast to tens of thousands of people one time that’s a big challenge. And so, these are the things that hold them back in terms of going into video. And then the last thing I talked to is just, if I’m a customer for my client, I login into the enterprise world, I live in and there’s a suite of applications that I use on a daily basis. I really don’t want another application and I’ll really like to be able to access video and not go to a separate application. We embed video inside all these different applications that people are using today like portals, the websites they are using and so forth. So our platform addresses many and most of those challenges. What we do is, we allow you to the take videos created in any of these points of origination; it could be a tower presence video conferencing room, it could be a link session to a market software link session, you just pulled your small team together you want to record that put into a repository which other people can come in and watch later, it could be studio a professional studio event, it could be a live event of a stage somewhere, it could be this event right here we’re having today. All of these things can be done on our platform. And then, one of the things that is going to really make video take off is when does video creation really started happening at the desktop. When does it start happening at the tablet level and we think that is indeed definitely going to be happening. This gentleman here is dealing with some challenges and we could probably help him, right now. So, that’s what our platform does, it takes video and outs it into a repository. Once it gets into a repository; by the way that process is called interview. Once it gets into that repository then you want to apply things like meta data, you want to be able to archive it with indexed so you can come and do a search on that content because as you start to develop a lot of assets it’s like any type of content is, yes, it’s hard to find, it’s hard to manage, it’s hard to deliver and then that’s what our platform does. Now that it is in the repository, I want to control who gets access to it. So we now tap into all our existing security paradigms and manage control who gets access to it. So I’ve got to pick, how do I get it to them, how do I deliver that video? They may be working of a 4G network or it will start at a hotel somewhere or maybe on a campus with 3,000 other people and they want to all hear that stream at the same time that’s most likely going be a cross, an internal CDM company like a Cisco or a Riverbed or our product by itself, we actually have the appliances as well. And the other thing they want to do is, they maybe in a small branch office in a Bangkok and they need to have 20 people to stream and that’s probably going be brought them into their optimizers to expect them to see in. Our system has the knowledge and the intelligence to come in and figure out where are they located, what type of devices are they going be looking at that video on and what’s the best path in there, because now I got to trans-code, make the formatting and be right through them make the right formatting then look into what kind of bandwidth they have and then deliver it. So on top of that we also make and sell inside of a rich mobile application, we also embed that inside portals like IBM connections, SharePoint from Microsoft. Inside the financial services world of the product called the Citrix in desktop and that product is a virtual desktop and today it does not allow anyone to access video. We are making platforms like that video ready. And then, I talked about deployment. I talked about how our companies today are on premise and moving to the cloud. Our legacy has been on premise and over the last two years, we’ve developed a cloud version as well and that’s something that we offer to our clients is that flexible deployment and it is a very, very pleasing thing to them. So why do we vent, a lot of things? If I had to sum it down to two or three things, I’d say first of all delivery technology getting video from point A to point B is very, very challenging that’s the top thing we do. We bring a lot of things to the table, especially around live videos, secure download, and digital rights management and then just picking the most optimal route to deliver that video. On top of that I think it’s sweet that we’ve come to that game, thinking like an enterprise company and not a consumer company so deep understanding of enterprise epi-structures are deep set, rich style of enterprise integrations and we are able to deploy that in any way that they wanted to play that. And I think the other thing is that if you’ll come on in one on one fashion I’ll be happy to show you a logo sheet who are customers are. You’ll see they are some of the biggest names in the world and they talk to each other and they give us very good referrals. More importantly they talk to industry analysts Companies like Garter, Oyster, Boss and Sullivan and Aragon. If you look at these in the up ranking quadrant, you’ll see that we are leaders on all four of these and this has been something we worked hard to get so it’s very valuable to us and our shareholders. So video for us started off a lot as, call it as CEO live broadcast. That’s probably been the opportunity to get to know us and then because we are live broadcasting. But the scene now we see happening is that, the news cases are growing pretty rapidly. We’ve seen a lot of growth around collaboration of knowledge sharing. It’s how do I embed inside platform like Jive, inside platform like connections and so forth and that is going to continue growth. We see a lot of training, a lot of sales enablement, marking automation; those are the things where you are embedding video into a content that you are moving out to your client. We are a young company. We are very early on market. We’ve got leadership position one of the things we’ve worked very hard to do is to put a platform in place so it will allow us to grow and over the last year and a half, I think we made a lot of progress as we got the right people on the ground now. I think we’ve got a leadership team that has the ability to triple or quadruple all the size of the company where we are today. We have put a global sales footprint around the world with a marketing agent to feedback that footprint. We’ve rebranded the company about a year ago. That’s gone very well for us. We’ve seen a number of contracts grow there to make sure we’ve people available to support the customers after the sale because we want them to keep buying the contracts or renewing those term contracts. And so we’ve expanded in the area of customer support. We’ve also expanded in terms of the ability to deploy all of that technology with consultants and service people around the world and then we are not resting on our loss. We continue to invest heavily in R&D as we believe this is going continue to develop as a market and we’ve seen outstanding results this year. Let’s take a quick look at what we’ve seen since Q3 of last year, about a year ago, we started seeing a significant inflection point in market place and as you can see our backlog which is in blue and it really took off, our contracts which you see in red significant performance year over year in all those and you see the revenue has been lagging. The reason for that is this deployment activity that I was talking about. We’ve got a lot of big contracts and it took us a lot to get to the point that it is now up and running. As you can see the revenue is starting to track with those contracts they have been there. We are expecting giving guidance this year for over 50% to contracts growth and 30% revenue growth year over year. I talked about cash position. We do have strong cash position. We recently sold our publishing business which was the legacy business of the company we did that back on July first and so there will be another $19 million to $20 million coming on the balance sheet post Q2 of last year. So with that I would love to take your questions. I think we have got a great opportunity here big market. I think that we demonstrated that we have got technology leadership to continue the way it does. And I think significant opportunity for investors to participate in value creation. We would love to talk further with you. Yes.

[Unidentified Analyst:]

(Inaudible)

[Sherman L. Black:]

Yes, the question was all assets and liabilities of the business. Yes, all the liabilities and we have got the assets coming in the cash.

[Unidentified Analyst:]

(Inaudible)

[Sherman L. Black:]

Sure, absolutely. The question is why did we sell the publishing business? What was the process that went into that? That business peaked in 2007. We had management changes happened at back end in 2009, worked very hard to slow down the erosion and to position our business to generate cash over the long haul. We went through several integrations of optimizing that business. But at the end of the day challenges you have is, you get a business that is just like mine, anything like physical media is being challenged in a drastic way. There are numerous potential future liabilities they could pop up with owning global hardware producing company in a shrinking market at pretty rapid rate. We looked at the amount of dollars that we could generate over time. And we looked at the amount of money that we could take off the table upfront and I thought best for our shareholders to eliminate any potential risk on that. More importantly allow us to focus on what we see as billion dollar opportunity. And its peak this publishing market was never more than a $200 million opportunity at its peak. And that peak happened in 2007, we all know how fast the world has been moving ahead. So it was just strictly, if you can take it now take it off take the table and eliminate that risk. And sharpen your focus on the business and opportunity in front of us.

[Unidentified Analyst:]

And another question on the (inauidble)

[Sherman L. Black:]

Its two separate markets, its two separate markets, two separate platforms. We are more video on demand, more one to many, one to few as opposed to a two way communication. We do have messaging capabilities, we do ability to polling during the live broadcast, but doing the streams back and forth that’s a very competitive market there is a lot of companies doing that and it’s now something that we are not perusing at this time nor I do see us doing that.

[Unidentified Analyst:]

(Inaudible)

[Sherman L. Black:]

They do not, they cannot, they do not have the delivery capabilities most cases they don’t have the applications built in. You have to do what we’ve got. In fact I just tell you right now there was company Polycom it is called Polycom, right? Polycom in 2009 bought a company called Quodar which was competitor of QUMU and in 2010 actually they made that acquisition. And for a long time that was one of the top people we were running into. I am not sure what happened to that business we no longer see Polycom and Quodar in this space. Since some more, we see Cisco another company participates in that market. They also have not heard any success in going into our space either.

[Unidentified Analyst:]

Do you have any (Inaudible)

[Sherman L. Black:]

If we are, we are licensing it. Yes we are licensing it. I can tell you we certainly don't talk a lot about it to the client. Okay.

[Unidentified Analyst:]

(Inaudible)

[Sherman L. Black:]

We have couple of different paths. Our number one path is direct enterprise sales. We got around 20-25 people spread out across the world and more than half of those are in the United State. And we have got strong presence in UK and Germany and in Europe. We have also have goods underground in Japan and Singapore. We are going be moving into Australia and New Zealand markets as well with something towards the beginning of the year. We are also in process of developing a channel. We have partnerships and we have secured very a large deal with help of partner earlier in the year. You saw an announcement that we made. That was AT&T, was the partner. There is another fourth largest service provider in the world. They were talking and now trying to establish a partnership with their company that have actually bought the product of our company for their own use and they see an opportunity to create a service practice around that. They will continue to build that out. I think there’s also potential OEM opportunities to take our technology perhaps into one of these video conferencing partners that we were just talking about. Sure. You know I’d say that there are a lot of companies there SAS only so take a Kentucky, they today only sell their product in a club as a SAS product some are only have not got so much flexibility in their model and we don’t want to dictate our customers how to buy that product. Probably my life would be easier, but there is lot of money to be made with these clients and I can tell you in many of these markets such as financial services, pharma, they are not ready to go to your cloud. They want to go pure SAS, that depends on the flavor of the day and terms of CapEx or OpEx but right now we think it’s too early to dictate to the customers here’s how you’re going buy my product. We’re going give them that choice at this point.

[Unidentified Analyst:]

You’ve obviously put a lot of resources to channelize these relationships. Can you unravel the context around where we are in mainly where you’ve put in the resources two years ago?

[Sherman L. Black:]

Right so we put in I’d say two year ago we put in leaders. So put in a guy at the top and they started building out the team and looking where our footprint was. This time last year we were in the process of hiring a lot of people. As you know, if go back a little, from my remarks it was really coming into that January sales meeting where we kicked off a year that’s when we had all the boots on the ground. They started off in the New Year like any new sales team learning the product, learning the process. When we hired people I knew the trajectories and I think they’ve got a good start. We are on track along in terms of our productivity as we broadcast around, we are on track to hit the target well that we set for the year. In like any sales process, there will be people that we make changes on because some work, some don’t but I would say it’s working very well. I’d like to see more progress in some of the departmental level sales. I think that the biggest success has been in the larger enterprise and deals, I’d like to see a wider mix of deals which would increase our deal flow so today took a deal sizes for us see a half a million dollars and I’d love to see a lot more coming in the door a $100,000 or $200,000 range that would improve our predictability quite a bit. That’s the reason Jeff I think we’ve got a lot of opportunity on.

[Unidentified Analyst:]

How do you prioritize when and how (Inaudible)

[Sherman L. Black:]

I think it’s all about the company growth so I think from an R&D perspective as you think forward, we won’t be backing up, but I don’t think you’ll see R&D growing as a sooner revenue either. I think our sales and marketing continue to be a very rich spend as we try to give more of a global from where we are today. There are still geographies that we are not covering. There’s still that channel opportunities. In fact back to your earlier question, that’s another area I’d like to see more progress is to be able to share more channel numbers and I’m confident that’s going happen and these are big companies we are establishing partnerships with and it takes a little time.

[Unidentified Analyst:]

Yes and from that point, will you consider--?

[Sherman L. Black:]

I think this a very developing market and that’s going create opportunities down the road and we’re going keep an eye on the landscape. Right now, you know, the people are going toe to toe in most cases. They are not really complimentary to us and so I don’t at this point see a big consolidation role. If we do anything we’d be looking for something that we expand our strategic platform not consolidation. Yes. I’d say 6 months. I’m sorry. I don’t even, I don’t know. I’ll be honest with you in terms of just the lowest possible, my conversion rate. We are not that mature yet.

[Unidentified Analyst:]

(Inaudible).

[Sherman L. Black:]

Yes, I think, trying how best I can describe that to you. Go and look into, just do it ourselves. The sales rep pops the deal and they put in a deal. They are either 150 or 250 that’s his standard price and then as you get closer to the deal, you sit down with the customer and you score their opportunity, that deal will usually migrate up and that’s where I get the averages around 500,000. As far as you know what the composition looks like, I’d say we are still, you know, there is hundreds of opportunities and the average deal size is probably around $400,000 and there’s probably a standard deviation Jeff on that of a couple $100,000 so still a wide swing, very wide swing. Okay, great. I appreciate you coming in and again I look forward to also in meeting with one on one. Thanks again.