Market Overview

Qumu Announces Second Quarter 2018 Results, Reports Strong License Revenue Growth

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Conference Call Wednesday, August 1, 2018 at 10:00 a.m. ET

Qumu Corporation (NASDAQ:QUMU) today reported financial results for the
second quarter ending June 30, 2018. The Company reported strong growth
in both license revenue and sales pipeline, increasing gross margins,
paydown of its long-term debt, and reiteration of its 2018 full year
revenue guidance.

Second quarter 2018 revenue was $7.6 million, compared to $6.7 million
in the second quarter 2017, and net loss for the second quarter 2018 was
$(1.5) million, or $(0.16) per diluted share, compared to a net loss of
$(2.6) million, or $(0.28) per diluted share, in the second quarter
2017. Second quarter adjusted EBITDA, a non-GAAP measure, was $71,000
for the second quarter 2018, compared to $(1.0) million for the second
quarter 2017.

"During the second quarter of 2018 we not only brought revenue into
line, but also created a strong balance sheet by monetizing our
investment in BriefCam," said Vern Hanzlik, Qumu's President and CEO.
"Now we are focused on carrying that momentum through the second half of
2018, as our software-as-a-service video solutions gain traction within
the enterprise."

For the six months ended June 30, 2018, revenue was $12.5 million,
compared to $13.4 million last year, and net loss was $(6.1) million, or
a loss of $(0.64) per diluted share, compared to $(6.2) million, or a
loss of $(0.66) per diluted share, last year. For the six months ended
June 30, 2018, adjusted EBITDA was negative $(2.8) million, compared to
negative adjusted EBITDA of $(3.0) million last year.

The year-over-year revenue comparisons were negatively impacted by
approximately $240,000 and $424,000 for the three and six months ended
June 30, 2018, respectively, due to the adoption of the new revenue
recognition standard (ASC Topic 606). Additionally, the loss of a large
customer, which was previously announced as lost in the fourth quarter
2017, negatively impacted the year-over-year revenue comparisons by
approximately $800,000 and $1.6 million in the three and six months
ended June 30, 2018, respectively. The Company incurred severance
expense relating to cost reduction initiatives of $6,000 and $16,000 in
the three months ended June 30, 2018 and 2017, respectively, and
$168,000 and $123,000 for the six months ended June 30, 2018 and 2017,
respectively.

Other Financial Highlights

  • Software license and appliance revenue was $2.9 million and $0.9
    million for the three months ended June 30, 2018 and 2017,
    respectively, and $3.3 million and $2.1 million for the six months
    ended June 30, 2018 and 2017, respectively, with the increases
    attributable to both new license sales and expansion of existing
    customers.
  • Subscription, maintenance and support revenue was $4.1 million and
    $5.1 million for the three months ended June 30, 2018 and 2017,
    respectively, and $8.2 million and $9.9 million for the six months
    ended June 30, 2018 and 2017, respectively. The year-over-year revenue
    comparisons were negatively impacted by approximately $246,000 and
    $443,000 for the three and six months ended June 30, 2018,
    respectively, due to the adoption of the new revenue recognition
    standard (ASC Topic 606). Additionally, the loss of a large customer
    which was previously announced as lost in the fourth quarter 2017,
    negatively impacted the year-over-year revenue comparisons by
    approximately $800,000 and $1.6 million in the three and six months
    ended June 30, 2018, respectively.
  • Offsetting for the negative impacts noted above is growth in our core
    business and subscription growth. Contributing to subscription,
    maintenance and support revenue in the current period was the
    arrangement with iStudy Co. Ltd., Qumu's sales partner in Japan.
    iStudy has agreed to pay Qumu $1 million in non-refundable Qumu Cloud
    license fees to expand the strategic relationship between the
    companies.
  • Gross margin for the second quarter 2018 was 68.5%, compared to 65.6%
    for the second quarter 2017. Gross margin for the six months ended
    June 30, 2018 was 63.7%, compared to 63.6% for the six months ended
    June 30, 2017. The change in gross margin compared to the prior year
    periods was favorably impacted by increased perpetual license revenue
    in the quarter.
  • Cash and cash equivalents totaled $5.2 million as of June 30, 2018,
    compared to $7.7 million as of December 31, 2017, reflecting the 2018
    first half operating loss offset by changes in working capital.
  • Subsequent to June 30, 2018, the Company received net cash proceeds of
    $9.6 million on July 6, 2018 from the sale of its investment in
    BriefCam Ltd., which was recently acquired by Canon Inc.
  • From the BriefCam net proceeds, the Company paid on July 19, 2018 $6.0
    million of principal and $463,000 of accrued interest on its
    outstanding term loan with ESW Holdings, Inc. As of July 20, 2018,
    after the receipt of BriefCam proceeds and prepayment on its
    outstanding term loan, the Company had cash on hand of $7.3 million.

Given the performance to date and sales pipeline, the Company is
confident in the achievement of its previously issued revenue guidance
for the full year 2018. Core bookings growth is expected to be 25% in
2018, emphasizing growth in sales of the Qx platform. Revenue for 2018
is expected to be approximately $25 million, which includes an
approximately $1.1 million unfavorable revenue impact due to the
adoption of the new revenue recognition standard (ASC Topic 606) in
2018, as well as the loss of a large customer in the fourth quarter
2017, representing revenue of approximately $3.2 million annually. Gross
margin percentage is expected to be in the mid to high 60s. Adjusted
EBITDA for 2018 is expected to be approximately $(3.5) million, which is
unchanged from previously issued guidance. The Company expects to
achieve positive adjusted EBITDA, a non-GAAP measure, in the fourth
quarter 2018. Adjusted EBITDA for 2018 excludes the net gain of
approximately $5.2 million on the sale of BriefCam Ltd. and subsequent
paydown of term debt, stock-based compensation expense of
approximately $1.0 million, amortization of acquired intangible assets
of approximately $2.1 million, depreciation expense of
approximately $0.5 million, income tax benefit of approximately $0.2
million, and interest expense of approximately $1.8 million. Net loss
for 2018 is expected to be approximately $(3.5) million, which includes
the gain on the sale of its investment in BriefCam Ltd. in the third
quarter 2018 and results for the six months ended June 30, 2018.

Conference Call
The Company has scheduled a conference call
and webcast to review its second quarter 2018 results tomorrow, August
1, 2018 at 10:00 a.m. Eastern Time. The dial-in number for the
conference call is 877-456-6914 for domestic participants and
929-387-3794 for international participants. Investors can also access a
webcast of the live conference call by linking through the investor
relations section of the Qumu website, www.qumu.com.
Webcasts will be archived on Qumu's website.

Non-GAAP Information
To supplement the Company's condensed
consolidated financial statements presented on a GAAP basis, the Company
uses adjusted EBITDA, a non-GAAP measure, which excludes certain items
from net income (loss), a GAAP measure. Adjusted EBITDA excludes items
related to interest income and expense, the impact of income-based
taxes, depreciation and amortization, stock-based compensation, change
in fair value of warrant liabilities, foreign currency gains and losses,
the gain on the sale of BriefCam and other non-operating income and
expenses.

The Company uses both GAAP and non-GAAP measures when planning,
monitoring, and evaluating the Company's performance. The Company
believes that adjusted EBITDA is useful to investors because it provides
supplemental information that allows investors to review the Company's
results of operations from the same perspective as management and the
Company's board of directors. Non-GAAP results are presented for
supplemental informational purposes only for understanding our operating
results. The non-GAAP results should not be considered a substitute for
financial information presented in accordance with generally accepted
accounting principles, and may be different from non-GAAP measures used
by other companies.

See the attached Supplemental Financial Information for a reconciliation
of net loss, a GAAP measure, to adjusted EBITDA, a non-GAAP measure, for
the three and six months ended June 30, 2018 and 2017.

Forward-Looking Statements
This press release contains
forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Any
statements contained in this press release that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," or "estimate" or comparable terminology are
intended to identify forward-looking statements. Such forward-looking
statements include, for example, statements about: the Company's future
revenue and operating performance, cash balances, future product mix or
the timing of recognition of revenue, the demand for the Company's
products or software, and the expected tax effects of the Company's
disposition of its investment in BriefCam. The statements made by the
Company are based upon management's current expectations and are subject
to certain risks and uncertainties that could cause the actual results
to differ materially from those described in the forward-looking
statements. These risks and uncertainties include the risk factors
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2017 and other factors set forth in the Company's filings
with the Securities and Exchange Commission.

About Qumu
Qumu is the leading provider of best-in-class
tools to create, manage, secure, distribute and measure the success of
live and on-demand video for the enterprise. Backed by the most trusted
and experienced team in the industry, the Qumu platform enables global
organizations to drive employee engagement, increase access to video,
and modernize the workplace by providing a more efficient and effective
way to share knowledge.

 
QUMU CORPORATION
Condensed Consolidated Statements of Operations
(unaudited - in thousands, except per share data)
 
    Three Months Ended
June 30,
    Six Months Ended
June 30,
2018     2017 2018     2017
Revenues:
Software licenses and appliances $ 2,867 $ 929 $ 3,318 $ 2,149
Service   4,759     5,725     9,139     11,216  
Total revenues   7,626     6,654     12,457     13,365  
Cost of revenues:
Software licenses and appliances 804 368 1,139 862
Service   1,602     1,918     3,379     4,008  
Total cost of revenues   2,406     2,286     4,518     4,870  
Gross profit   5,220     4,368     7,939     8,495  
Operating expenses:
Research and development 1,639 1,798 3,542 3,907
Sales and marketing 2,412 2,524 4,592 4,975
General and administrative 1,747 2,009 3,928 4,469
Amortization of purchased intangibles   227     226     456     449  
Total operating expenses   6,025     6,557     12,518     13,800  
Operating loss   (805 )   (2,189 )   (4,579 )   (5,305 )
Other income (expense):
Interest expense, net (510 ) (334 ) (1,354 ) (651 )
Decrease (increase) in value of warrant liability (278 ) 11 109 (67 )
Other, net   (16 )   (124 )   (403 )   (179 )
Total other expense, net   (804 )   (447 )   (1,648 )   (897 )
Loss before income taxes (1,609 ) (2,636 ) (6,227 ) (6,202 )
Income tax benefit   (78 )   (25 )   (166 )   (29 )
Net loss $ (1,531 ) $ (2,611 ) $ (6,061 ) $ (6,173 )
 
Net loss per share – basic:
Net loss per share $ (0.16 ) $ (0.28 ) $ (0.64 ) $ (0.66 )
Weighted average shares outstanding

9,484

9,356 9,427 9,301
Net loss per share – diluted:
Net loss per share $ (0.16 ) $ (0.28 ) $ (0.64 ) $ (0.66 )
Weighted average shares outstanding

9,484

9,357 9,427 9,301
 
 
QUMU CORPORATION
Condensed Consolidated Balance Sheets
(unaudited - in thousands)
 
Assets

   June 30,   
2018

  December 31,
2017
Current assets:
Cash and cash equivalents $ 5,202 $ 7,690
Receivables, net 4,954 5,529
Contract assets 339
Income taxes receivable 277 156
Prepaid expenses and other current assets   1,934     1,830  
Total current assets 12,706 15,205
Property and equipment, net 533 911
Intangible assets, net 5,202 6,295
Goodwill 7,224 7,390
Deferred income taxes, non-current 69 77
Other assets, non-current   4,200     4,398  
Total assets $ 29,934   $ 34,276  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities $ 2,961 $ 3,878
Accrued compensation 1,216 1,824
Deferred revenue 8,514 8,923
Deferred rent 49 181
Financing obligations 226 1,047
Warrant liability   2,886     819  
Total current liabilities   15,852     16,672  
Long-term liabilities:
Deferred revenue, non-current 947 141
Income taxes payable, non-current 3
Deferred tax liability, non-current 76 153
Deferred rent, non-current 298 507
Term loan and other financing obligations, non-current 7,956 7,608
Other liabilities, non-current   485      
Total long-term liabilities   9,762     8,412  
Total liabilities   25,614     25,084  
Stockholders' equity:
Common stock 95 94
Additional paid-in capital 68,435 68,035
Accumulated deficit (61,319 ) (56,197 )
Accumulated other comprehensive loss   (2,891 )   (2,740 )
Total stockholders' equity   4,320     9,192  
Total liabilities and stockholders' equity $ 29,934   $ 34,276  
 
 
QUMU CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
 
    Six Months Ended
June 30,
2018     2017
Operating activities:
Net loss $ (6,061 ) $ (6,173 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,347 1,548
Stock-based compensation 438 783
Accretion of debt discount and issuance costs 1,035 236
Loss on lease contract termination 177
Change in value of warrant liability (109 ) 67
Deferred income taxes (72 ) (71 )
Changes in operating assets and liabilities:
Receivables 588 2,425
Contract assets 211
Income taxes receivable / payable (130 ) 135
Prepaid expenses and other assets 197 710
Accounts payable and other accrued liabilities (1,019 ) 315
Accrued compensation (604 ) (522 )
Deferred revenue 938 (368 )
Deferred rent (144 ) (150 )
Other non-current liabilities   436      
Net cash used in operating activities   (2,772 )   (1,065 )
Investing activities:
Purchases of property and equipment   (73 )   (20 )
Net cash used in investing activities   (73 )   (20 )
Financing activities:
Proceeds from term loan and warrant issuance 10,000
Principal payment on term loan (8,000 )
Payments for term loan issuance costs (1,308 ) (125 )
Principal payments on financing obligations (247 ) (255 )
Common stock repurchases to settle employee withholding liability   (27 )   (11 )
Net cash provided by (used in) financing activities   418     (391 )
Effect of exchange rate changes on cash   (61 )   94  
Net decrease in cash and cash equivalents (2,488 ) (1,382 )
Cash and cash equivalents, beginning of period   7,690     10,364  
Cash and cash equivalents, end of period $ 5,202   $ 8,982  
 
 
QUMU CORPORATION
Supplemental Financial Information
(unaudited - in thousands)
 

A summary of revenue is as follows:

       
Three Months Ended
June 30,
Six Months Ended
June 30,
2018     2017 2018     2017
Software licenses and appliances $ 2,867 $ 929 $ 3,318 $ 2,149
Service
Subscription, maintenance and support 4,122 5,110 8,160 9,948
Professional services and other   637     615     979     1,268  
Total service   4,759     5,725     9,139     11,216  
Total revenue $ 7,626   $ 6,654   $ 12,457   $ 13,365  
 

A reconciliation from GAAP results to adjusted EBITDA is as
follows:

 
Three Months Ended
June 30,
Six Months Ended
June 30,
2018 2017 2018 2017
Net loss $ (1,531 ) $ (2,611 ) $ (6,061 ) $ (6,173 )
Interest expense, net 510 334 1,354 651
Income tax benefit (78 ) (25 ) (166 ) (29 )
Depreciation and amortization expense:
Depreciation and amortization in cost of revenues 2 9 5 19
Depreciation and amortization in operating expenses   126     241     295     489  
Total depreciation and amortization expense   128     250     300     508  
Amortization of intangibles included in cost of revenues 293 298 591 591
Amortization of intangibles included in operating expenses   227     226     456     449  
Total amortization of intangibles expense   520     524     1,047     1,040  
Total depreciation and amortization expense   648     774     1,347     1,548  
EBITDA (451 ) (1,528 ) (3,526 ) (4,003 )
Increase (decrease) in fair value of warrant liability 278 (11 ) (109 ) 67
Other expense, net 16 124 403 179
Stock-based compensation expense:
Stock-based compensation included in cost of revenues 8 18 18 32
Stock-based compensation included in operating expenses   220     352     420     751  
Total stock-based compensation expense   228     370     438     783  
Adjusted EBITDA $ 71   $ (1,045 ) $ (2,794 ) $ (2,974 )
 

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