Qumu Corp (QUMU) CEO Vernon Hanzlik on Q4 2019 Results - Earnings Call Transcript

Qumu Corp (QUMU) Q4 2019 Earnings Conference Call March 4, 2020 4:30 PM ET

Company Participants

David Ristow - CFO

Vernon Hanzlik - President, CEO & Director

Conference Call Participants

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Qumu Fourth Quarter 2019 Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Dave Ristow, Chief Financial Officer. Please go ahead, sir.

David Ristow

Good afternoon, everyone, and thank you for joining our fourth quarter and year-end 2019 earnings conference call. At the market -- after the market closed, we issued a press release announcing our results for the fourth quarter and year ended December 31, 2019, a copy of which is available on the Investor Relations section of our website at qumu.com.

We will make certain statements today with respect to our expected financial results, go-to-market strategy and efforts designed to increase our traction and penetration with customers, as well as our proposed merger with Synacor that was announced on February 11, 2020. These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note, these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to our SEC filings, specifically our Form 10-K and Form 10-Q and other financial results press release for a more detailed description of risk factors that may affect our results. Our financial results press release also includes a description of the risk factors that may affect the anticipated timing of the proposed merger, completion of benefits of the proposed merger, anticipated future combined operations and offerings and expected synergies to be achieved.

During our call today, we will discuss adjusted EBITDA, a non-GAAP financial measure in our press release and our filings with the SEC, each of which is posted to our website. You will find additional disclosures regarding this non-GAAP measure included -- 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. We encourage you to consider all measures when analyzing the company's performance.

Please note that in consideration of the anticipated merger with Synacor which we announced on February 11, we will not be hosting a question-and-answer session at the conclusion of our remarks.

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

Vernon Hanzlik

Thank you, Dave, and welcome, everyone. I'd like to open with a few comments, then hand the call back to Dave for more details on the numbers. Qumu completed 2019 year-over-year improvements in revenue, gross margins, adjusted EBITDA and cash position. These improvements, combined with having a debt facility paid off, reflects the fundamental strength of our business. As you know, Qumu has pivoted its product set towards a SaaS model, giving customer implementation flexibility by building towards a predictable recurring revenue stream. We are also steady driving to build out our partner channel, resulting in notable relationships with organizations like V-cube in Japan and BT Worldwide, among others.

Qumu remains steadfast in our commitment to serve large enterprise customers who currently -- which currently include 72 members of the Forbes Global 2000, 45 members of the Fortune 500, 14 of the world's most valuable brands, 10 of the Forbes World's Best Banks, and the top 5 credit card companies in the country based on current active accounts.

With that said, as we announced our preliminary financial release on February 11, revenues fell short of our 2019 full year and fourth quarter targets. This was due to 3 large expansion agreements with existing customers for our intelligent delivery solution that were delayed in the contracting process, once again highlighting the lumpiness that can result from our on-premise business. That said, we have closed 2 of the 3 delayed deals Q1 2020. Also, our gross margin percentage for 2019 was 72%, which compares favorably to our financial guidance as expected gross margin percentage of high 60s to low 70s. Qumu also finished the year with customer retention at 92%. And as mentioned, our cash position remained strong at $10.6 million, having fully repaid our credit facility.

These metrics underscore the strength of our business and confidence that customers have in Qumu. Let me take a minute to highlight 3 key elements that define Qumu. First, Qumu's excellence in serving the enterprise. Our ability to retain, grow our high-profile customers is due in a significant way to our customer's -- Qumu's dedication to sales and customer support teams. These are experts who differentiate Qumu from our competitors because they understand and solve tough challenges facing large enterprises today. They provide hands-on guidance and serve these global organizations required. Just last month, we held an annual sales kickoff as we do every year. The entire team committed to specific goals that will be important in the near-term as well as post-merger. These include: adding new enterprise logos to our client base, converting our on-premise customers to hybrid cloud with the intent of driving an increase in Software as a Service revenue as a percentage of our total revenue.

Second, our stellar industry representation. Our superior video-first customers is not lost to industry analysts who consider Qumu at the top of their annual enterprise video reports. In fact, during the quarter, one of the most respected firms in our area, Aragon Research, identified Qumu as the fifth -- Qumu, for the fifth time, as a leader in enterprise video. And just yesterday, Aragon named Qumu as a contender for the second straight year in the exploding video and web conferencing space. Qumu's back-to-back placement as a contender in the video conferencing space underscores the importance that global organizations are placing on crisis communication and using video as a substitute for business travel during these uncertain times. Our platform is helping enterprise turn their video conferencing platforms into full-feature streaming, webcasting, content creation engine that enhance seamless global communications.

And third, our record innovation. Qumu's innovation in the enterprise video space continues at a rapid pace as we have made our platform highly intelligent, extremely versatile and ease of integration. And we are now offering an entirely new and innovative way that we call Enterprise Video as a Service. Qumu's Enterprise Video as a Service platform is a true end-to-end solution for creating, managing and delivering live and on-demand video across any organization. It allows organizations to manage videos securely and at scale with comprehensive network health monitoring, end-user engagement analytics. Enterprise Video as a Service is a component architecture which is especially attractive to channel partners who want to add enterprise video to their branded offerings.

Now let me take a minute to highlight another opportunity for us. Our planned merger with Synacor announced on February 11 which provides future financial strength as we grow -- continue to grow and expand with a broader SaaS-based collaboration technology and stronger distribution. First, we expect the merger, due to close late in the second quarter of 2020, will allow us to extend the use of video through the Qumu platform to a much wider audience via Synacor's 1,900 partners and 4,000-plus enterprise clients. Second, we share a common DNA with Synacor in the focus on Software as a Service and on delivering solutions that facilitate collaboration within our organization. This union will allow us to be a vital part of a comprehensive collaboration technology suite, one of which touches over 100 million business end-users across the globe. We will also gain an opportunity to cross-sell Synacor's cloud ID product to our very large secure-focused customers in banking, finance, health care and government who are faced with challenges of authenticating tens of thousands of mobile and global distribution users.

With that overview, I'll now hand the call back over to Dave to further -- financial details for the fourth quarter and full year 2019.

David Ristow

Thank you, Vern. I'll begin with a brief commentary on some of our financial highlights. On a year-over-year basis, for the full year 2019, revenue increased $349,000. Gross margins were 72.2%, an improvement of 6.2%. Our operating loss was reduced by $1.6 million. Customer retention remains strong at 92%, annual recurring revenue increased $1.1 million or 6.4% and we raised $8.2 million net through the issuance of common stock and fully repaid the ESW credit facility.

In a bit further greater detail, the highlights are as follows: for the full year 2019, revenue was $25.4 million compared to 2018 revenue of $25.0 million against 2019's revenue guidance of $27 million. As Vern mentioned, fourth quarter revenue was less than expected due to several large expansion agreements with existing customers that were delayed in the contracting process, 2 of which have been delivered in Q1. Net loss for 2019 was $6.5 million compared to the net loss of $3.6 million for 2018, which compares to the net loss guidance of $5.1 million. Adjusted EBITDA for 2019 was $2.9 million loss compared to an adjusted EBITDA loss for 2018 of $3.5 million, which compares to 2019's financial guidance of a $1.5 million loss. Both the unfavorable net loss and adjusted EBITDA guidance misses were driven by the fourth quarter revenue delays.

Cash and cash equivalents totaled $10.6 million as of December 31, 2019, compared to $8.6 million as of December 31, 2018. In November 2019, we paid off our ESW debt facility. The principal balance totaled $4 million as of December 31, 2018, compared to $0 as of December 31, 2019.

Lastly, in consideration of our anticipated merger with Synacor, we will not be providing financial guidance for 2020. For further detail on the anticipated transaction, we encourage you to review our SEC filings, which can be found on the Investors section of our website.

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

Vernon Hanzlik

Thanks, Dave. To wrap up, Qumu's underlying business is strong, and we believe the planned merger with Synacor will fully amplify our strategy of pivoting the business towards a SaaS model and building a stronger partner channel. Going forward, our focus will be as follows: to capitalize on our new Enterprise Video as a Service capability; to laser focus on solving tough problems related to video in the enterprise; to maintain customer retention above 90%; to grow and monetize our existing channel by building upon established partnerships with BT and others, while positioning Qumu to capitalize on the exciting opportunity ahead of us with the Synacor merger; to execute on our direct sales strategy and continue to expand our footprint within our existing customer base, while bringing net new customers within our defined market; and finally, to improve our financial results, building on our strong financial fundamentals.

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

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You now disconnect. Everyone, have a great day.

Question-and-Answer Session

End of Q&A