Qumu Announces Third Quarter 2017 Results

Year-over-year improved gross margins and operating results

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

MINNEAPOLIS–(BUSINESS WIRE)–Qumu Corporation (NASDAQ: QUMU) today reported financial results for the
third quarter 2017.

Third quarter revenue was $7.6 million, compared to $7.1 million in the
third quarter 2016, and net loss was $(2.3) million, or a loss of
$(0.25) per share, compared to $(2.5) million, or a loss of $(0.27) per
share, in the third quarter 2016. Third quarter 2017 results included
foreign currency losses of $(0.02) per share. Third quarter adjusted
EBITDA (a non-GAAP measure) was a loss of $(0.9) million, compared to an
adjusted EBITDA loss of $(1.4) million for the third quarter 2016.

For the nine months ended September 30, 2017, revenue was $20.9 million,
compared to $22.4 million last year, and net loss was $(8.5) million, or
a loss of $(0.91) per share, compared to $(10.9) million, or a loss of
$(1.18) per share, last year. For the nine months ended September 30,
2017, adjusted EBITDA was a loss of $(3.8) million, compared to an
adjusted EBITDA loss of $(7.4) million last year.

“This was a notable quarter for Qumu. We signed a large number of new
customers as our Qx strategy, announced in May, gains momentum. Revenues
were within guidance but were at the lower end of the range due to a
contingent sale representing more than $600,000 which we expect to be
recognized as revenue in the fourth quarter. Our growing number and
variety of new blue-chip customers tells me that our Qx enterprise video
platform is resonating within the Global 2000. These organizations know
their future depends on an adaptive workforce with a high digital IQ.
Video will permeate all facets of their business and they need an
infrastructure with the flexibility to scale,” said Vern Hanzlik, Qumu’s
president and CEO.

Qumu has also announced the appointment of Dave Ristow as Interim Chief
Financial Officer, effective November 7, 2017. Ristow brings more than
20 years of experience in the CFO role, with leadership expertise in
strategic planning, stakeholder relations, financial process design and
corporate governance. He has worked with companies in various industries
including software as a service, professional services and medical
technology.

Other Financial Highlights

  • Subscription, maintenance and support revenue for the third quarter
    2017 was $5.1 million compared to $5.0 million for the third quarter
    2016. The variance in subscription, maintenance and support revenue
    primarily resulted from growth in the customer base, as well as the
    timing of customer renewals.
  • Gross margin for the third quarter 2017 was 61.6% compared to 59.8%
    for the third quarter 2016. Gross margin for the nine months ended
    September 30, 2017 was 62.8% compared to 56.9% for the nine months
    ended September 30, 2016.
  • Total headcount was 120 as of September 30, 2017 compared to 119 as of
    June 30, 2017 and 152 as of September 30, 2016.
  • Cash and marketable securities were $7.7 million as of September 30,
    2017, compared to $9.0 million as of June 30, 2017, reflecting the
    third quarter operating loss and the impact on cash from changes in
    working capital.

Guidance
For the fourth quarter 2017, revenue is expected to
be in the range of $8.5 million to $9.5 million, compared to $9.3
million in the fourth quarter last year. Total gross margin percentage
is expected to be in the mid to high 60s in the fourth quarter. Fourth
quarter net loss is expected to be in the range of $(1.4) million to
$(900,000), or $(0.15) to $(0.10) per diluted share, with
weighted-average shares outstanding of approximately 9.4 million shares.
Adjusted EBITDA for the fourth quarter 2017 is expected to be in the
range of breakeven to income of $500,000, compared to adjusted EBITDA
income of $790,000 in the fourth quarter 2016.

For the full year 2017, revenue is expected to be in the range of $29.4
million to $30.4 million. Total gross margin percentage is expected to
improve from the low 60s early in the year to the mid 60s late in the
year. Net loss is expected to be in the range of $(9.9) million to
$(9.4) million, or $(1.05) to $(1.00) per diluted share, with
weighted-average shares outstanding of approximately 9.4 million shares.
Adjusted EBITDA loss for the full year 2017 is expected to be in the
range of a loss of $(3.8) million to $(3.3) million compared to an
adjusted EBITDA loss of $(6.6) million in fiscal 2016. The Company
expects a tax benefit of $200,000 in fiscal 2017.

Term Loan
The Company has continued to experience recurring
operating losses and negative cash flows from operating activities. The
ability of the Company to continue as a going concern is dependent upon
the Company maintaining compliance with the covenants of its term loan
credit agreement with HCP-FVD, LLC, an affiliate of Hale Capital
Partners, LP, the administrative agent. If an event of default occurs
due to the Company not maintaining compliance with the covenants, the
lender may accelerate the repayment of outstanding principal or exercise
its other rights as a secured lender, which would negatively impact the
Company’s ability to fund its working capital requirements, capital
expenditures and general corporate expenses. The Company likely will not
comply at October 31, 2017 with the covenant requiring that cash and
eligible accounts receivable be at least 118% of the outstanding
obligations under the credit agreement. Outstanding obligations under
the credit agreement were $8,000,000 at September 30, 2017 and October
31, 2017. The covenant shortfall is primarily due to provisions of the
credit agreement requiring the exclusion of portions of certain large
accounts receivable from eligible accounts receivable. These provisions
resulted in $974,000 of accounts receivable from two Fortune 50
customers being excluded from eligible accounts receivable at October
31, 2017. Additionally, the Company is unable to project, with
reasonable certainty, future compliance with this minimum cash and
eligible accounts receivable covenant over the next twelve months. If an
event of default occurred and the term loan were accelerated, the
Company would be unable to fund full repayment of the term loan
obligations from its existing cash and fund its other liquidity needs
within the next twelve months. At September 30, 2017, the Company had
cash and cash equivalents of $7,738,000 as compared to $8,000,000 in
outstanding obligations relating to the term loan and a required
$800,000 prepayment fee. The Company’s cash position as compared to the
outstanding obligations of the credit agreement, the Company’s
historical and expected cash flows from operating activities, and the
likelihood of non-compliance with covenants indicate substantial doubt
exists regarding the Company’s ability to continue as a going concern.
The Company is continuing to negotiate with HCP-FVD, LLC and Hale
Capital Partners, LP regarding the covenants and a potential amendment
of or waiver to the credit agreement, receipt of which cannot be assured.

Conference Call
The Company has scheduled a conference call
and webcast to review its third quarter 2017 results tomorrow, November
1, 2017 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 liability, foreign currency gains and losses,
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 nine months ended September 30, 2017 and 2016.

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, and the demand for the Company’s
products or software. 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, 2016 and other
factors set forth in the Company’s filings with the Securities and
Exchange Commission.

About Qumu
Qumu (NASDAQ: QUMU) helps the world’s largest
companies realize the value of putting video to work for their digital
workforce. Organizations use Qumu software to create, manage and share
video-live streaming and on demand-turning video into an always-on
resource and connecting thousands of stakeholders across a single
enterprise.

   

QUMU CORPORATION

Condensed Consolidated Statements of Operations

(unaudited – in thousands, except per share data)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
Revenues:
Software licenses and appliances $ 1,822 $ 1,154 $ 3,971 $ 3,952
Service 5,751   5,956   16,967   18,409  
Total revenues 7,573   7,110   20,938   22,361  
Cost of revenues:
Software licenses and appliances 916 563 1,778 1,932
Service 1,995   2,294   6,003   7,697  
Total cost of revenues 2,911   2,857   7,781   9,629  
Gross profit 4,662   4,253   13,157   12,732  
Operating expenses:
Research and development 1,769 1,986 5,676 6,746
Sales and marketing 2,509 2,435 7,484 8,945
General and administrative 2,083 2,109 6,552 7,344
Amortization of purchased intangibles 226   221   675   674  
Total operating expenses 6,587   6,751   20,387   23,709  
Operating loss (1,925 ) (2,498 ) (7,230 ) (10,977 )
Other income (expense):
Interest expense, net (343 ) (13 ) (994 ) (40 )
Change in value of warrant liability 15 (52 )
Other, net (166 ) (13 ) (345 ) (24 )
Total other expense, net (494 ) (26 ) (1,391 ) (64 )
Loss before income taxes (2,419 ) (2,524 ) (8,621 ) (11,041 )
Income tax benefit (110 ) (39 ) (139 ) (133 )
Net loss $ (2,309 ) $ (2,485 ) $ (8,482 ) $ (10,908 )
 
Net loss per share – basic and diluted:
Net loss per share $ (0.25 ) $ (0.27 ) $ (0.91 ) $ (1.18 )
Weighted average shares outstanding 9,404 9,241 9,335 9,232
 
   

QUMU CORPORATION

Condensed Consolidated Balance Sheets

(in thousands)

 
September 30, December 31,
Assets 2017 2016
Current assets: (unaudited)
Cash and cash equivalents $ 7,738 $ 10,364
Receivables, net 6,425 7,495
Income taxes receivable 180 317
Prepaid expenses and other current assets 1,813   2,470  
Total current assets 16,156 20,646
Property and equipment, net 1,114 1,827
Intangible assets, net 6,807 8,110
Goodwill 7,335 6,749
Deferred income taxes, non-current 68 70
Other assets, non-current 4,437   4,827  
Total assets $ 35,917   $ 42,229  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and other accrued liabilities $ 2,712 $ 2,394
Accrued compensation 1,988 2,361
Deferred revenue 9,411 8,992
Deferred rent 331 283
Financing obligations 284 508
Warrant liability 945   893  
Total current liabilities 15,671   15,431  
Long-term liabilities:
Deferred revenue, non-current 364 423
Income taxes payable, non-current 3 6
Deferred tax liability, non-current 199 294
Deferred rent, non-current 537 712
Financing obligations, non-current 13 170
Term loan, non-current 6,856   6,617  
Total long-term liabilities 7,972   8,222  
Total liabilities 23,643   23,653  
Stockholders’ equity:
Common stock 94 92
Additional paid-in capital 67,941 66,864
Accumulated deficit (52,955 ) (44,473 )
Accumulated other comprehensive loss (2,806 ) (3,907 )
Total stockholders’ equity 12,274   18,576  
Total liabilities and stockholders’ equity $ 35,917   $ 42,229  
 
 

QUMU CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

 
Nine Months Ended
September 30,
2017   2016
Operating activities:
Net loss $ (8,482 ) $ (10,908 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,309 2,515
Stock-based compensation 1,090 1,035
Accretion of debt discount and issuance costs 364
Change in value of warrant liability 52
Deferred income taxes (112 ) (148 )
Changes in operating assets and liabilities:
Receivables 1,204 4,892
Income taxes receivable / payable 142 265
Prepaid expenses and other assets 1,070 (727 )
Accounts payable and other accrued liabilities 563 (884 )
Accrued compensation (405 ) (1,823 )
Deferred revenue 151 (1,857 )
Deferred rent (132 ) (193 )
Other non-current liabilities   (226 )
Net cash used in operating activities (2,186 ) (8,105 )
Investing activities:
Sales and maturities of marketable securities 6,250
Purchases of property and equipment (22 ) (52 )
Net cash provided by (used in) investing activities (22 ) 6,198  
Financing activities:
Principal payments on financing obligations (383 ) (386 )
Payments for debt issuance costs (125 )
Common stock repurchases to settle employee withholding liability (11 ) (18 )
Net cash used in financing activities (519 ) (404 )
Effect of exchange rate changes on cash 101   (120 )
Net decrease in cash and cash equivalents (2,626 ) (2,431 )
Cash and cash equivalents, beginning of period 10,364   7,072  
Cash and cash equivalents, end of period $ 7,738   $ 4,641  
 
   

QUMU CORPORATION

Supplemental Financial Information

(unaudited – in thousands)

 

A summary of revenue is as follows:

 
Three Months Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
Software licenses and appliances $ 1,822 $ 1,154 $ 3,971 $ 3,952
Service
Subscription, maintenance and support 5,113 4,986 15,061 15,223
Professional services and other 638   970   1,906   3,186  
Total service 5,751   5,956   16,967   18,409  
Total revenue $ 7,573   $ 7,110   $ 20,938   $ 22,361  
 

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

 
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net loss $ (2,309 ) $ (2,485 ) $ (8,482 ) $ (10,908 )
Interest expense, net 343 13 994 40
Income tax benefit (110 ) (39 ) (139 ) (133 )
Depreciation and amortization expense:
Depreciation and amortization in cost of revenues 6 15 25 55
Depreciation and amortization in operating expenses 227   271   716   833  
Total depreciation and amortization expense 233   286   741   888  
Amortization of intangibles included in cost of revenues 302 308 893 953
Amortization of intangibles included in operating expenses 226   221   675   674  
Total amortization of intangibles expense 528   529   1,568   1,627  
Total depreciation and amortization expense 761   815   2,309   2,515  
EBITDA (1,315 ) (1,696 ) (5,318 ) (8,486 )
Change in fair value of warrant liability (15 ) 52
Other expense, net 166 13 345 24
Stock-based compensation expense:
Stock-based compensation included in cost of revenues (3 ) 9 29 27
Stock-based compensation included in operating expenses 310   286   1,061   1,008  
Total stock-based compensation expense 307   295   1,090   1,035  
Adjusted EBITDA $ (857 ) $ (1,388 ) $ (3,831 ) $ (7,427 )
 

Contacts

Qumu Corporation
Investor Contact:
Vern Hanzlik,
650-396-8531
President and CEO
vern.hanzlik@qumu.com