Qumu Corporation (NASDAQ:QUMU)
Q2 2016 Earnings Conference Call
August 03, 2016, 10:00 AM ET
Vern Hanzlik – President and Chief Executive Officer
Peter Goepfrich – Chief Financial Officer
Mark Argento – Lake Street Capital
Jeff VanRhee – Craig-Hallum
Glenn Mattson – Ladenburg Thalmann
Neil Cataldi – Blueprint Capital Management
Steve Vonder Haar – Wainhouse Research
Good day ladies and gentlemen and welcome to the Qumu Corporation Second Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]
I would now like to introduce your host for today's conference, Mr. Vern Hanzlik, President and CEO. Sir, please go ahead.
Thank you. Good morning, everyone and thank you for joining our second quarter 2016 earnings conference call. Some of our comments today may contain forward-looking statements, which are subject to risks, uncertainties and assumptions, should any of these materialize, or should our assumptions prove incorrect, actual company results could differ materially from the forward-looking statements.
A description of our risks, uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q.
During our call, we may offer metrics to provide future insight to our business and results. This detail may or may not be provided in the future. We may also reference certain unreleased services or features not yet available. We cannot guarantee the timing or availability of these services or features. So we recommend customers listening today make purchase decisions based on services or features currently available.
With me today is Peter Goepfrich, our CFO. I will begin the call touching on a few second quarter financial highlights. Peter, will then provide some additional financial commentary. From there I'll provide an operational highlights and comments on our market. After that, we will open the call up to questions.
We generated quarterly revenue of $6.5 million compared to $8.8 million second quarter of 2015. But in the first six months, revenue was $15.3 million compared to $14.7 million last year. Additionally, in the first half of 2016, we continue to see perpetual license transactions move into the second half of the year and those transactions are mostly large deals.
Software license and appliance revenue for the quarter was $836,000. The $1.9 million decrease from second quarter 2015 and the $905,000 decrease year-to-date was primarily due to delays in several large perpetual license opportunities in the second quarter of 2016.
Subscription, maintenance and support revenue for the quarter was $4.7 million. The $120,000 increase from the second quarter of 2015 was primarily due to run-off of deferred revenue write-downs during the 2015 related to the Kulu Valley acquisition.
$1.5 million increase to-date was primarily due to the inclusion of approximately $700,000 of revenue in the first quarter of 2016 related to customer acceptance and contract buyouts. The run-off of approximately $375,000 of deferred revenue write-downs during 2015 related to the Kulu Valley acquisition, and the balance of the increase was a result of net impact of customer activity.
Professional services and other revenue for the quarter was $967,000. The $486,000 increase from second quarter 2015 and the $110,000 decrease year-to-date is primarily due to lower software license and appliance sales in the first half of 2016 compared to the first half of 2015.
We continue to focus on strengthening our financial performance and growing the business from new and existing customers. And existing customers accounted for 46% of our revenue in the second quarter. These enterprise customers represent some of our largest vertical markets; financial, technology, manufacturing and pharmaceutical. All new customers for the quarter were cloud with potential to grow into hybrid enterprise customers.
Geographically the Americas and EMEA market continued to show adoption of enterprise video and our enterprise customers continue to expand. The America market represents 75% of our revenue and the EMEA market represented 22% of our revenue for the quarter.
In APAC, we continue to make progress developing our pipeline through our partnership with VQ, Fujitsu, CTC and other unified communication partners. APAC represented 2% of our revenue for the quarter.
Additionally in the first half of 2016, our global renewal rates for maintenance, support, term contract and SaaS contracts was greater than 88%. As I commented in the press release, we saw timing of several deals both new and existing customers push into the second half of the year, and we continue to feel confident about those transactions, but are more cautious about their timing.
For additional financial commentary, I'll turn the call over to Peter.
Thank you, Vern. I'll expand a few item not already addressed by Vern or included in our earnings release yesterday. I'll begin with gross margin.
Total gross margin improved 6 percentage points to 54.7% and 11.7 percentage points to 55.6% for three and six month ended June 30, 2016 compared with corresponding period last year. The improvement was driven by increased service gross margin related to cost savings initiatives implemented in the second half of 2015, improved economies of scale on increased subscription maintenance revenues.
Partially offsetting the improvement in service gross margin was a decrease in software license and appliance gross margin for the three and six month ended June 30, 2016 compared with corresponding periods last year. The decrease was due to product mix for 2016 period which included the higher percentage of appliance revenue which generally has lower margins that software license revenue.
Total gross margin is expected to improve from the mid-50s through the first half of the year to mid- to high-60s late in the year.
Moving on to operating expense and adjusted EBITDA, our non-GAAP measure. We have right-sided our expense structure over the past 12 months on a similar revenue base, significantly improving our operating results and adjusted EBITDA. Compared to the corresponding periods last year, total operating expenses decreased 31% and 28% for the three and six months ended June 30, 2016.
Total operating loss improved 39% and 50% for the three and six months ended June 30, 2016. Adjusted EBITDA improved 47% to a loss of $3.1 million and 58% to a loss of $6 million for the three and six month ended June 30, 2016.
Now for the balance sheet, cash and investment were $8.3 million as of June 30, 2016 compared to $11.3 million as of March 31, 2016. We continue to manage cash closely and expect that it will be cash flow breakeven for the fourth quarter of 2016. Whether or not we're able to become cash flow breakeven for the fourth quarter of 2016, we believe that we'll need to raise additional capital to execute our business plan to pursue our growth objectives which include the transition to more recurring revenue and a lower reliance on perpetual license sales over time.
There can be no assurance that we will raise capital at a particular time or on acceptable terms if at all. The potential strategies for raising capital could include but are not limited to the sale of all or portion of our Briefcam investment and/or the issuance of equity securities.
During this transition in our business model, we are continuing to focus on providing the best enterprise video content management solutions and services as rated by industry analysts to our customers and to the global 5000 market.
Now back to Vern.
Thanks Peter. Let me review some of our key operational highlights and market comment. Then we'll open the call up to questions. The business video market continues to evolve and grow, but Qumu's core opportunity hasn't changed delivering leading enterprise class, end-to-end video platform, built with a cloud first architecture, but deployable on-premise as a hybrid on in the cloud.
Our investment in Kulu Valley less than two years has positioned us well to do this. We have been delivering on our strategy for the last year with early adopters and now we are ready to put the next generation architecture in place for our defined markets. Our software platform is unique in its ability to address the needs of an enterprise video with a single platform and fragmental our enterprise drive at scale, internal or external used cases, and with our new architecture service layer for our partners to integrate with the platform.
This flexibility opens up multiple avenues for us, our customers and business video use cases evolve over the next 12 to 24 months. We have defined our target market as the Forbes Global 2000 which represents a huge market size of 8.7 million employees, 51% of the world's GDP. The opportunities for us is clear to see the number of Qumu customers already in the Forbes Global 2000 list. Qumu's customer represents 4% of the top 2000 customers, 10% of the top 500 customers and 19% of the top 100 customers in Forbes list.
We will continue to focus new customer acquisitions on Forbes Global 2000 companies and similarly sized privately held firms in three distinct areas. At the enterprise-wide level, we continue to have success with new and existing customers. These deals tend to be on-premise installations and have an ASP of several hundred thousand dollars or higher. We continue to win business, because customers demand choice, control and completeness of solution that we can offer. We continue to see used cases of video in the enterprise multiply, and so our ability to expand horizontally in our customer base. We are best in class at scale in this segment.
The second area of opportunity is hybrid enterprise solutions which we can now fulfill with our Qumu Cloud solutions and Pathfinder delivery services. This is a large and growing segment of the market, usually smaller than the enterprise-wide on-premise deals but greater in number. The Qumu Cloud solution coupled with our highly differentiated Pathfinder delivery technology will give our customers the benefit of cloud with the ability to scale into the enterprise wide solution.
The third area of opportunity is entry-level cloud video. These deals are smaller in size but have potential to expand in the hybrid or enterprise-wide. This space is competitive, but our integrations with unified communications solutions like, Pexip or Skype for business and our ability to offer a seamless path to scale by create wins for us.
In Q2, we won more new cloud deals than any previous quarter. In Q2, we began implementing account based marketing strategy that we expect to have a positive impact on our account acquisition rates in our defined market and maximize core job expansion in existing enterprise accounts in the future.
We made significant progress on account based marketing on several fronts. We're building a targeted content database through internal data mining and external acquisitions focused on identifying five key titles in IT and communications at each of our 2000 defined targeted customers. This list powering our alpha marketing campaigns, they are engaging our target markets at a higher than typical rate. For example, one of our targeted email campaigns achieves 40% open rate and a 50% click to market rate, 3X to 4X higher than our typical engagement rate.
Account based marketing is also driving increasing engagement with our existing customers including roadmap meetings in over 20 accounts in the last five months, where we expect to drive significant upgrades in 2016 and 2017. Another example of targeted outreach for our customer base, an open email campaign to existing accounts targeted by communication solution, a key cross-selling matrix for our Google customers.
On the business development front, integrations with partners and adjacent technologies and applications are now on place, that open opportunities for us. We have integrations with Pexip and Skye for business in the unified communications, Citrix for video for VDI desktop and Jive for video social business collaboration platform. We are seeing a strong pipeline of new opportunities collectively from these integrations.
As I mentioned earlier, we continue to grow in some of our largest existing enterprise customers for the second quarter, as stated 46% of revenue for the second quarter came from multiple existing customers, which 50% were from financial services, 15% came from technology companies, and the balance from pharma manufacturing and the professional services industries.
The deployment footprint for business video creation, management and delivery for everyone in these organizations will continue to increase as we reach all employees, partners, customers with secure video. Organizations will continue to invest in video applications for the future for more live and on-demand applications, as well as other video use cases.
In summary, while we are disciplined with our second quarter revenue, we have appropriately adjusted our expense structure over the past 12 months. We remain confident in our ability to transition to a more re-occurring revenue and a lower reliance on perpetual license sales over time.
In the near term, through the uncertainty related to the timing of large perpetual license opportunities, we've revised our annual guidance. During this transition, we will continue to focus on providing the best video solutions to enterprise video content management market for our customers and our defined market.
We continue to invest in the future with a mindful discipline on our product direction, clear vision for our teams and operational momentum to carry us into the second half of the year, well-positioned to reach our corporate milestones and revenue growth objectives in the future.
Now, I would like to open the call up for questions.
[Operator Instructions].Our first question comes from Mark Argento from Lake Street Capital. Your line is now open.
Good morning guys. Couple of things, first on the, Peter, it's probably for you in terms of trying to get to cash flow breakeven, kind of given the run rates we're seeing right now, you have to do any major headcount reductions, any major changes operationally at all to be able to achieve cash flow breakeven given kind of what you are putting out there in terms of revenue guidance for Q4 for the full year?
We don't. We have to hit our revenue targets.
Dovetails on my next question, in terms of visibility, I know, you guys maintained the guidance last quarter, thinking that this was going to -- there was obviously some push-out, but you'd be able to hopefully capture in the quarter, capture some of these larger deals? Are those deals still out there, or maybe you could talk Vern a little bit about the pipeline or the condition of the pipeline right now?
Yeah. The deals are still out there Mark. I think there is -- if I look at over the next five months throughout the end of the year, I mean that's one of the things that we're looking at is the pipeline remains there. The decision points on some of these, some of our competitive, we think that we're well positioned in a number of them and some of them are just timing and customer acquisition. So, we've continued to scrutinize the pipeline as I commented on. But I think that we're not seeing the deals go away. We are just seeing in the larger on-premise are the ones that caused the revenue within the quarters, as you heard me talk about, we're seeing more momentum in the cloud side. But pipeline remains -- we're continuing to grow the pipeline and evaluate it very diligently.
And the success you are having in cloud right now, I think you had mentioned in Q2, those are the most new cloud customers that you brought in. What's the customer acquisition process, the cloud customer versus of more traditional enterprise customer?
Well, as you heard, I mean our -- we're defining the market the same. We had one in particular came in through our unified communications partner which was a large investment bank in Europe. That was a six-week sale cycle. It was an entry-level which will grow into something as we stated. I mean we're starting in more of a land, and expand there. A couple of them are large enterprises that we just targeted in the department which we'll roll out, which is really kind of solid, we're going with our strategy and some of them are just coming in, because it's a video portal and we're competing more, and I said that's a more competitive space for us, but we're really painting the picture that says a lot of these are in the Fortune 2000. But they are starting it departmental. So, the acquisition time can be faster depending on how it comes in, but it also can be just a department and departmental budget at this point. So, we're attacking these businesses at those firms.
Historically, you guys have had a decent amount of exposure to the U.K. Just given the acquisition of Kulu Valley and some other legacy relationships, and I know obviously you focus a lot of your customers on fairly regulated industries including financial services. Given you know the initial shock to the system with the Brexit situation kind of causing little bit of paralysis. Have you seen that, kind of pass it all, is that market starting to become a little more rational in terms of buying decisions again?
I think it's relevant to what it did to the economy. I think that Brexit did put a pause. Short-term, I think that we're seeing a lot of our activity right now is more in the German market in addition to our base in the U.K. market, but the German market is, we have a large pharmaceutical -- some of the largest pharmaceuticals in Germany as customers and we're leveraging that into other opportunities in manufacturing and that starts to create its own fulfilling environment as we go into the German market which has some significant opportunities that we'll work on in that space.
So, I don't think that it's a factor at this point. I mean we're watching it cautiously, Mark, but I think that I would say that people are going to invest based on business case and need and we haven't seen it hit our -- we saw one thing delayed in sign-off of a financial institution, but that was about the only thing that we saw on the radar. I wouldn't put some of these delays of what we saw, we could had one that pushed into Q3 because of that, but I don't know if I would it put it onto that. I think it was more of execution and timing for the customer.
Great. I'll hop back in the queue. Thanks guys.
Our next question comes from Jeff VanRhee from Craig-Hallum. Your line is now open.
Hey guys, thanks. So a couple from me. Maybe just starting on the sales side I guess, Vern, you laid out kind of the three distinct opportunities; enterprise, hybrid and the entry-level. Can you talk about the sales force as it stands now? What is the headcount? What's the structure? How are you mapping that structure to address those three fairly distinct markets with seemingly pretty different needs?
Great question Jeff. Right now we've got about 12 order clearing folks. The way that they are mapped right now is that we have business development reps handing to the reps right now and then we have customer success folks that are working, the existing cloud customers and trying to expand those. So, we have two levels and we're evaluating sort of the hunter farmer model right now. What we're evaluating is we have a pipeline. They are falling into those three distinct areas; enterprise which was the larger deals that we've been traditionally closing this new cloud hybrid and then cloud deals. And we're taking the guidance from the clients of how they're acquiring the stuff whether it's a CapEx or OpEx. And the mindset of the customer, you know if it's a large deal, it's usually on a premise and it's you know -- it's not an OpEx acquisition, and they've got it budgeted.
So, we've got the right people that we assign to that. So, we're assigning our best reps onto the largest deals and we' do accounting. We kind scatter that across the reps at this point. And then we're looking at over the next six or 12 months how we organize that from a tiered structure and then we also have our BD or channel which is evolving too. So, we've got people focused on -- we've got really good traction in EMEA with our channel and we're replicating that in the U.S. through the in-flight communications, because they sell through partners at this point. So that's sort of the structure Jeff, as we're kind of aligning those three buckets, but it's a flatter organization at the moment, but we're evaluating how we're going to set that up.
So, I guess if you look at the enterprise deals that have pushed for a couple of quarters, and you had said you are done some more detail scrubbing at a pipeline. At this point, do you feel like the push-outs over the last quarter, this quarter, the pattern or push-outs is more weighted towards execution, and if so what is specifically about it is the execution that you feel like is not happening to get those closed, or do you feel more like this is a reprioritization of spend at the targeted customers where your solution just for whatever reasons in the battle for budget isn't high enough up on the list. And if it's the prioritization, what do you do to change that situation. So maybe just which of those do you think is the bigger driver of the push-outs, and then, your thinking of how best to address that?
Well, some of them are market related on the healthcare side. It's just you know organizations in healthcare, whether they are coming together or not had caused push-outs. So that's kind of our -- where we've got opportunity sitting at a high level for a decision, they are just waiting. So that's market dependence and we're cautious on those even though we feel good about our position in the conversations we're having with those.
On the execution piece, it's just expansion to some of the people signing the right paperwork and we're to recognize the revenue and the client having the same sets of urgency that we have, that's execution stuff that we've got to get better at. And then -- I would say that the prioritization to some of the customers makings sure that it's what level of investment they want to have, whether it's an enterprise deal or it's a departmental deal. And qualifying it and then pushing it over the line, maybe at a smaller transaction and then moving into the enterprise.
So, it's all of the above Jeff. It's not -- and I can't I would wait them, if we're seeing, how is it impacting the business, it's more of these customers timing to acquire and then we're just taking their lead on it and making sure that we're giving them the information, so when the time is kind of, to sign the contract, we've got it ready to go and we're well positioned. And we've got one, where we've done proof-of-concepts and we're waiting for decisions on those and it's in our feed process and we can't push it any faster than it's being pushed right now.
And I guess Peter, with respect to some of the numbers, the recurring numbers I have at -- 5.5% last quarter down to 4.7% this quarter. What was the driver of this sequential decline?
The primary driver as Vern commented out briefly was, there is a variety of customer acceptance process as well as couple of contract lapse in the first quarter, which increased that number by over $700,000. So…
I missed that. There were customer buyout clauses in Q1 if I heard you right, just maybe expand on that?
The acceptance clauses which could result in delay of revenue until accepted, some of those. And we had a customer buyout or cancellations fees if they end up trying to buy our contract for various reasons, whatever happens to be. They have to pay a pretty large fee. So, it's built off the 5 number. So, if you are looking at a run rate, you are looking at more of the high 4.7%, 4.9% as a run rate from the current revenue base.
So buyouts in that 5.5 number were $0.5 million or so?
And those cancellations or buyouts, were they -- were these you know the result of merger on their part, displacement somebody else came in and they chose a different solution. What led to the buyouts or cancelations?
Any time this comes up, it's almost invariably there a merger or divestiture, where really it is place on the enterprise level, doesn't happen.
Then on the EBITDA, you gave the EBITDA ranges, just curious if there is anything we should think about with respect to working capital, obviously working towards the cash flow number. Is it EBITDA plus for the next couple of quarters, how do you think about the ultimate cash from ops versus what you've guided there on EBITDA, and then along the same lines, CapEx?
Almost very little CapEx, if any, almost inconsequential from a spend perspective on CapEx. Working capital depending on various commitments, it varies period to period as well as for sales primarily the deferred revenue collections. But so, Q3, we're not anticipating being cash flow breakeven at those cash levels. With those revenue levels, definitely a Q4 we see a transition occur at higher revenue levels and sales level.
Okay last one from me, and I'll let somebody else jump one here. The Briefcam, I know historically you've not been able to provide any quantification there. Given the earlier commentary about the couple of options in terms of raising capital equity sale or Briefcam sale, at this point are you in a position to give even a range of what of Briefcam sale might bring, I mean some semblance so we can at least get a sense of magnitude of how relevant that might be in terms of bridging the cash need?
Unfortunately, you can't until we get to the point, where we finalize any potential transaction could be for some, or all of our investment. We clearly don't anticipate a loss on any component of it. It's would be matter of cost plus our premium relative to how they are valued today. So, we anticipate it being straight upside. We just don't know the amount.
Okay. Also, thank you.
And our next question comes from Glenn Mattson from Ladenburg Thalmann. Your line is now open.
I missed part of the earlier part of the call, I apologize, but maybe, Vern, can you give a little bit of better description or a rehash a little bit about some of the factors in the market place. Specifically, I'm wondering, is there any change in the competitive landscape. Is there any -- are you seeing more players, when there is a deal out there, give some color there?
Glenn, on the high, you know about the three distinct markets. You know on the high-end we see the normal -- there's three to four players that we run into depending on, and if it's in our defined market, and it's a larger live on-demand at scale building out of private broadcast, we usually are winning those. Those are longer sales cycles and larger transaction. But we have the same players in there. We don't see any new players in that area.
On the cloud, plus our Pathfinder deployment which is referred to as hybrid, that's a new spot for us. We think that we have a unique offering there with kind of what is our -- what we're referring to as our next-generation architecture and we think that we'll compete well there and we'll see some more players kind of step into that, but we haven't seen any new ones.
On the cloud only that's where we see the most competitive, as they are transactions that range from $35,000 all the way up to $100,000 annual contract value, and we see more players in there, because it might be just an online video and they are not really looking at all the platform components. So, those are three defined areas even within the Forbes 2000 or even the Global 5000 as we've referred to.
Those are the three distinct areas that people are buying in departments and what we're selling as our platform, so we've traditionally been just in the IP and high level, and we always went into this in our investment in the Kulu Valley is that we have to have full, and that's where the market is going to be. And we're starting to grow that out with a combined architecture now with our Cloud plus Pathfinder.
And so, competitively, we're just kind of getting going. That's where we'll start and see a lot of traction with our account based marketing. So, I think the competition is going to heat up. I think that we see organization that are just, it maybe just marketing and just media publishing or it's in over the top which are areas that we do external, we do got out and we do marketing, but we're not in the over-the-top business. So, but we stay out of the media and publishing areas and we focus on the core, which is the Fortune 2000 at this point which is where there is lots of opportunities to win. Build more complex environment, higher security needs and that's what we want to compete.
That's helpful. And maybe I missed it. Did you talk about the partners at all, some of the sales partners and maybe some of the technology sales partners like Citrix, and if there is any traction?
Yeah. I did a brief comment on it Glenn, but just to revisit that, I mean the unified communications component where we're delivering with Pepix, we have a strong pipeline with them. We closed a couple of deals last quarter in conjunction with that interface that we've built with them. We see that where those environments want to manage those video assets or those meetings, they want to index them, they want to stream them to a larger audience, one to many. We're getting a lot of feedback from industry analyst that that is the need, so we're trying to kind of be a thought leader on how we integrate not just to a Pepix, but there is a [indiscernible] on there, there is a video, there is a StarLeaf, there is existing environment where these types of gateways and endpoints will create a lot of traction for us.
So that area is percolating on the Citrix side which is really focused on creating video for those VDI desktops for and we see a lot of them in the financial group, and it is a competitive advantage and we continue to focus on that. So, we've got some exact needs with Citrix to kind of make more of a splash video on all desktop. So, and -- those are the key areas that we're focused on where we actually sit monetizing our channel and then building out practices with those partners. Then in Asia-Pac we'll be a complete channel region for us in general.
Our next question comes from Neil Cataldi from Blueprint Capital.
Sounds like the sales cycle with new customers is moving a little slower thank you like, but the past two quarters have appeared particularly strong with your existing customers expanding. Can you talk a little bit about the trends you are seeing, once you are in the door of your customers? And how long does it typically take before they want to expand their relationship?
Well, just in general on the add-ons for the existing customers would be delivery or our Pathfinder technology to extend that and design more of a deliver network which is endpoints, more caching of video, more demand and those are add-ons and we kind of build that out. So, we've got several customers doing that. Some of the new things that we've got, we've got unified communications gateway where people want to start to use, in a lot of these financial institutions they have lots of endpoints to generate or start video or start meetings and we are integrating that.
So that provides both software and professional service integration. So, and then -- you know, mobile, as we were building out mobile we're starting to see more and more traction with people with mobile want to build out mobile apps, customize them, put them in their own stores . Then the other big component is the integrations with SharePoint, Jive, Yammer, these social environments or content portals to integrate with the fabric inside these big enterprises. And that's -- those are the areas that happening in our base and we continue to see -- get that more and more horizontal, and then the last piece is user-generated content.
Educating the desktops to create more video which creates more management need and create more demand on the network, so those are the areas that we see -- I would say we're trying to put more of a science on this. I know that we've talked to you a little bit about this. But the timing on this can be the maturity is -- can move faster depending on the business cases, and those business cases are becoming more relevant based on what the consumer side of vide and what you can see on that is starting to impact the business and those things are needed.
Security is on the forefront of everybody mind there. So, it's somewhere between 12 and 18 months as we start to expand out. And it can be incremental in there and that's one of the things we're trying to do with our account base marketing strategy is we're doing education, evangelizing the thinking with inside different departments within these bigger enterprises, because if you -- the one department doesn't know what the next department, and when you are selling a platform, they can service them all, that's the evolution and we're really from a digital perspective really going after a broad horizontal view to educate the base of what they have as a platform and expand the use cases which increases our revenue opportunity within Forbes 2000.
Speaking of the Forbes 2000, I think you said you've got 50 of the top 500 and 19 of the top 100 of current customers.
If the average implementation is $400,000 to $500,000 how large do you think the average implementation can be when it's fully scaled for say 50 in the top 500?
Well, if I look at our largest customers and I'll put a broader range on this, but it just depends. If where they are consulting, say look, we're going to one platform for the video delivery. You could range anywhere from $500,000 to $3 million over a period of time as an opportunity within that market space. Because it's number of users, it's how much content they are generating, where it's coming from, how many integrations, mobile and then the amount of vide that will expand over the next, if they look at the total cost of ownership within the software over three year period, it becomes -- the privatized network competes that will -- the fear will come onto the IT organizations more when they start moving thousands of videos across their data networks and they are going to understand what a privatized networks means. And that's really what we try to educate the client.
So, that's a broader range Neil. There is the science on this and opportunities, we've got to do some more work with sort of how much does it cost for employee if you get maximum penetration, and I think that's kind of where we're ending is where the cost per employee and what's the cost for storage and then delivery what does that work to the client, and to us as an organization. So, we're working on that diligently as far as evaluating our base and we're getting more and more metrics on how to do that.
Okay, but is it -- I mean these are the largest companies in the world. So, is it fair to extrapolate, I understand the range is wide, but is it fair to extrapolate that opportunity with these companies, your current customers can be -- it sounds to me like it's upward of $40 million to $50 million. Is that fair?
You mean as far as our revenue on an annualized basis?
It means 50 of your top 500 if your engagements with these companies, you know average the midpoint of the range you've given, it's $1.5 million to $2 million. I'm just trying get my hands around what that opportunity is with your current customers?
Yeah for sure. I think the key is, that's why we're laser-focused on that base right now Neil. It definitely is education across -- for our customers, because if you look at just the one of the numbers, as we have 69 of the Fortune1000, we just look at those 69 customers. They are using us for video-on-demand and streaming for live events. I mean there is a whole plus of applications that they need to be doing that we're educating them on to expand, and that goes back to -- we talk about the maturity model within this market place which is early days.
Some, in our top 5% to 10% of our largest customers, I'll user Bayer as an example in Germany. They've been with us for over three and half years. They are very mature on how they built out their network, how they are rolling it out globally. They have people that do this on a day-to-day basis, educating, they are creating massive amounts of video on a daily basis and they are still not fully penetrated across 110,000 employees. So, there is a lot of work to be done in our base of education, and then really -- what it brings to us an opportunity, but you're pretty good on your assumption as far as what that is, how we do that. That's really where we're focused on because there is a big opportunity for us in that perspective.
Maybe two more if I may. So you mentioned live events, live meetings. I think recently announced GoTo Meeting merging with LogMeIn. There's also been a number of other mergers and acquisitions in the video sort of landscape. Can you talk for a second about the opportunities that those are presenting or maybe the opposite if that's the case. I would like to get some feedback on that.
Sure. Well here is how we look at it. I mean, we've been messaging what we call unified communications, but we're looking at this from a perspective. If you look at the WebEx as the board meeting through world and collaboration of just meetings for BlueJeans, we see that type of collaboration in our small meeting footprint and that happens day to day. We see that transitioning to video conferencing. Video conferencing is going to be the new telephone call. We see that as an opportunity for us and also that's why we've had more of a Switzerland approach of managing video meeting of what we refer to as unified communications, because there is lots of companies that have -- you see in the cloud and they don't have a video, a management environment or they don't have one-to-many.
So we look at it, as we're part of the ecosystem of integration with those organizations that I need to manage those assets, I need to edit those assets, I need to index those assets for re-use and I need to stream them to a larger than 20 -- you know if you get more than 20 in one of those meetings, it's not useful, but if need to stream it to 500 or 50 or 200 or a 1000, we provide that mechanism as part of that ecosystem and we're getting a lot of -- that's where people are saying they are not --they've been thinking about how to do the collaboration, how that's changing and more cost effective, and the video conferencing that Pexip and the Acanos of the world, I think that's one of the strategies that Cisco has done with acquiring Acano.
So, we think the one-to-many is -- and the management component building out that network to deliver. That's one. It's one component of video. I think it's the largest that will be on a day-to-day basis, and the call durations are deciding from a compliance perspective, how much they are manage that video. And we see that more and more on the financial and pharma, telemedicine applications as we push forward with our strategy on this. And we think that we have -- that's what we talk about service layout integrations in the cloud and then providing scale on that and easy to integrate so that we can have these vendors writing to our services that way.
So we think that the -- it's a big opportunity. There is going to be a lot of different movement on that in the market as people look at the barring of this type of -- on structured content in their enterprise. And we think that we're well positioned to integrate with it, manage it and then also provide it seamlessly and that's really what we've done with our Pexip relationship. And we're the record function right now which is really just step-one to an overall video platform strategy for businesses.
My last one, it's a quick one. It's the one I think it's most important, because I'm finding myself a little unclear as this call is probably about to end shortly. I think the market is pricing into some extent a need for capital here. I know you've referenced it, but are you suggesting that you need capital? Given your guidance, I see cash bottoming out around $6 million if you make the turn in the fourth quarter. The Briefcam opportunity obviously exists because you've referenced that, but what is the likelihood that you are going to need to go the market in some capacity?
I can't comment on the likelihood other than to stand and expand the opportunity in front of us. We believe we do need to raise capital, and to drive out the growth strategy we have with this business transition between the perpetual license based sale to a term or subscription based sale. So, we believe the need is there. We can't comment on timing regarding that need or what we would anticipate.
But, is line of credit an opportunity as well? Just trying to understand that how you are viewing the different options sitting on the table to raise equity, it's Briefcam, is there anything else that you are considering?
I would say everything is an opportunity position of cash spread is typically harder to get lines of credit, so you have to write that or you are going to attain it usually. So, anything is on the table.
Okay. Alright, thanks guys.
[Operator Instructions] Our next question comes from Steve Vonder Haar from Wainhouse Research.
Steve Vonder Haar
I was wondering if you could talk about the scope or difference in the nature of deals when they are an enterprise level CapEx versus hybrid model both in terms of the size of the deal and the differences in CapEx versus OpEx between the two?
Steve, this is Vern. I think that -- I mean the size of depends on what we look at is just on an annual contract value perspective is that we would see the enterprise deals and they would be more capital, or they would be north of the $250,000 to $300,000 range and greater. On the hybrid deals, the way that we're looking at them is pure SaaS. Some more, because we're trying to deploying a software-only model there, because we've had -- we have hardware in our portfolio which are endpoints in appliances, but you would have annual contract value of what maybe our cloud, what we're calling Cloud plus Pathfinder deployment and that would be anywhere from -- it could be anywhere from $50,000 to $200,000 in annual contract value. And depending on those deployments, it really varies based on the number of endpoints anywhere from 10 to 50, right that's sort of the sweet spot of how you build out that network.
And then we have -- our approach on this is, we virtualize our endpoints and the clients, these larger clients have the hardware infrastructure and we push out sort of a container from our cloud and then we deploy essentially. So, it creates a software only type solution and it depends on the clients if they want us to put our clients out there, we will do that. But we're seeing more and more people want to deploy software only, and we kind of educate them on what the type of clients they need to have on these areas where they have audiences that you want to stage video and stream it more effectively based on that network.
Steve Vonder Haar
And then what we see are multi-year, two or three year commitment on those contract deals?
Yes. I mean we're always trying to get longer-term contracts and all that revenue is recognized ratably as we -- and it's really kind of -- that's one of the things we're seeing with some of the customers how they want to acquire the stuff, if it's a CapEx versus OpEx. We know that that market is changing and some of the bigger things that have infrastructure and want to run on-premise, we see that as CapEx and we see people are transitioning to more of an OpEx. How they want to buy? They've built out the total cost of ownership over three years. We'll work with them on a three year contract. So that's definitely the direction that we're moving.
Steve Vonder Haar
That's all I have.
And we show no further questions. I would now like to turn the call back over to Vern Hanzlik for any further remarks.
Thank you again for joining us today. If you have any follow-up questions, please contact us directly. Have a great day.
Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone have a great day.
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