Q3 2021 Qumu Corp Earnings Call
Welcome to <unk> third quarter 2021 conference call. My name is Kevin and I'll be your operator. This afternoon, joining us as coupons, President and CEO T. J Kennedy CFO roles, Betsy and Matt Glover from Gateway Investor Relations at this time, all participants are in a listen only mode. After the speaker's presentation.
And there'll be a question and answer session to ask a question during the session need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to turn the call over to Matt Glover, Sir you may begin.
Thanks, operator, and good afternoon, everyone. After the market close today <unk> issued a press release announcing its financial results for the third quarter ended September 32021 copy of which is available in the Investor Relations section of the company's website.
During today's call management will make certain statements with respect to the company's expected financial results. The company's go to market strategy and efforts designed to increase the company's traction and penetration with customers. These statements are forward looking and involve a number of risks and uncertainties that could cause actual results to differ materially.
Please note that these forward looking statements reflect management's opinions only as of the date of this call and the company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law.
Please refer to <unk> SEC filings, specifically its Form 10-K and financial results press release for a more detailed description of risk factors that may affect the companys results during.
During the call today management will discuss adjusted EBITDA, a non-GAAP financial measure in the Companys press release and filings with the SEC both of which are posted on the company's website you will find additional disclosures regarding this non-GAAP measure, including a reconciliation of this measure.
To 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. The company encourage you to consider all measures when analyzing its financial performance I'd like to remind everyone that this call is being recorded and will be made available for replay via link available in the Investor Relations section of <unk>.
This website now I'd like to turn the call over to <unk>, President and CEO T. J Kennedy D J.
Thank you, Matt and good afternoon to everyone participating in today's call our financial results for the third quarter reflect the continued execution of our strategic plan to grow our cloud business and scale, our SaaS recurring revenue base.
Today, we have a growing SaaS business, which totaled $13 1 million at quarter end up 19% year over year.
Operationally, our partner and direct sales motions are gaining traction.
While our customer success efforts are deepening relationships and further driving growth in our subscription <unk> and cloud conversions.
The cost optimization measures. We implemented in Q3 are also now taking effect as demonstrated by our 9% sequential decrease in operating expenses, we recorded during the period.
Put together, we are clearly underway to creating even more focused nimble and efficient organization.
When we started the journey in our strategic plan in Q3 of 2020, we were in a very different place regarding our SaaS business and where we are today.
In 2020, SaaS revenue as a percentage of recurring revenue that was SaaS was 41% in.
In Q3, SaaS revenue as a percentage of recurring revenue was 52% and we expect SaaS revenue to be above 50% of recurring revenue for the full year.
Q2, 2020, SaaS IRR was $9 7 million, which we grew to $11 million in Q3 of 2020, we have steadily grown our SaaS IRR to $13 1 million by the end of Q3 2021.
Our focus is to successfully transformed <unk> into a SaaS first company that drives the future work with enterprise video and continue to drive SaaS AOR growth.
As we continue to execute on our strategic plan, we will be laser focused on our customer customers driving more value in the cloud for them, while growing our SaaS IRR.
Now before we dive further into our operational initiatives and outlook, let me provide more color on our financial performance for Q3.
Subscription maintenance and support revenue was $5 1 million, an increase of 2% compared to $5 million in Q2 of 2021, and an increase of 1% compared to 5 million in Q3 of last year.
Total revenue for the third quarter was $6 4 million, an increase of 10% compared to $5 9 million in Q2 of 2021, and a decrease of 3% compared to $6 6 million in Q3 of last year.
Looking at our SaaS metrics subscription <unk> increased 19% in Q3 to $13 1 million from $11 8 million in Q3 last year.
The 19% growth was primarily driven by cloud conversions and cloud expansion.
Quarter end or SaaS gross retention rate or <unk> was 94% compared to 91% at the end of Q3 last year.
Our SaaS net retention rate or <unk> was approximately 119% consistent with the end of Q3 last year and finally, our SaaS dollar value retention was 101% compared to 99% at the end of Q3 2020.
Looking at our margins.
Q3, 2021 gross margin was 76% an improvement compared to 74% in Q2, 2021, and 75% in Q3 of last year the.
The gross margin increase was primarily due to a larger mix of higher margin cloud subscription revenues.
Looking at our costs as I noted in my earlier remarks, the cost optimization measures. We implemented during Q3 drove a 9% sequential decrease in our operating expenses.
While we are always going to look for ways and areas to improve efficiencies across the organization as of today, we are not planning to implement further cost cutting measures.
Turning to our profitability metrics net loss for the quarter totaled negative $3 7 million or 21 cents loss per basic share and diluted share.
This compares to a net loss of $4 3 million or <unk> 24 cents loss per basic share and <unk> <unk> loss per diluted share for Q2 of 2021 and a net loss of $1 9 million or 14 cent loss per basic and diluted share in Q3 of 2021.
The year over year increase in loss per diluted shares was expected as we transition the company to the cloud and recurring revenue SaaS subscription business.
Adjusted EBITDA loss, a non-GAAP measure was negative $3 5 million compared to a loss of $4 5 million in the prior quarter and a loss of 839000 in Q3 of last year.
We ended the quarter with $18 2 million in cash and no borrowings on our revolving credit facility.
We believe we have sufficient cash and capital resources to execute on our strategic plan to a cloud first and subscription SaaS subscription business.
Now that I've covered the highlights and the financial results I'll turn it over to our CFO rosebel to discuss the ongoing implementation of our strategic plan and the traction we have on key initiatives grows.
Thank you T. J good afternoon, everyone. It's great to be here with you today now that T. J has covered the SaaS transformation and financial details. Let me provide an update on some of the key areas within our transformation and our growth strategy.
As a reminder, our team has been focused on transforming <unk> into a subscription business centered around our customers and our partners.
I'll begin with an update on our growth strategy and how we are driving new logo generation and building pipeline last quarter, we increased our emphasis on inbound marketing and our initiatives are gaining traction.
We're creating better brand awareness already evidenced by the significant uptick in website traffic.
As well as engagement across social media channels and organic search for climate.
It's because of these concerted effort, we are driving more leads which is generating pipeline to support our growth and our transformation.
Our entire focus for sales marketing and customer success is to ensure that our customers are at the center of all of our decision, making and that by listening to our customers. The way, we will continue to deliver innovation and a differentiated customer experience.
Our continued marketing and sales efforts are showing signs of traction and giving us the opportunity to also focus on inspiring our partners to Q prefer an advocate for them.
Another key focus for our transformation is meeting our customers where they are in their cloud journey.
This focus will help us support our customers and drive us towards long term reliability and maintainability.
Over time supporting our customers on their cloud journey will help us grow our SaaS business.
We have had great success migrating customers to the cloud which has grown our SaaS.
Sure.
Some of the most successful initiatives include providing highly experienced professional services to ease the process.
Along that line, we expect to grow our professional services as we help more and more customers embrace digital transformation and new remote and hybrid work environment.
Delivering value to professional services to our customers is a useful tool to get deeper with customers and ensure they are maximizing the full capabilities of our platform.
As we've noted previously one of the most important initiatives we are executing on it.
Is on extending <unk> footprint and value to customers through strategic partnerships and alliances.
We have put focus on building out partnerships and scaling who must channel to ensure we deliver innovation and a differentiated experience for our customer.
Our largest customer win in Q3 was through our partner got smart.
Provider of it products and services to the federal government government and its prime contractors.
Partner led customer wins demonstrate the effectiveness of our partner first strategy and its ability to augment our direct sales effort.
Importantly, the partner led sales process is much more frictionless and accelerated because of our partners because our partners know their customers needs and already have a contractual relationship in place.
It's because of this dynamic that we have place even more emphasis on expanding our channel that salesforce to scale, our customer footprint and create a new and larger revenue opportunities for Hulu more rapidly.
To ensure we attract innovative partners and enable our partners strategy in Q3, we launched our new channel program, which includes partner incentive customer benefits operational support and market.
Development fund to help us further penetrate further the medium and large enterprise market.
Our differentiated partner program to help us secure our recently announced partnership with TD signing a.
A leading distributor and solutions.
For the ecosystem to bring coolest platform to their reseller distribution ecosystem.
This is an exciting partnership for us as more than 150000 resellers within TD ecosystem now have access to enterprise grade video filling a critical market need as organizations look to adopt video technology to collaborate with employees customers and partners and more engaging way.
<unk> offers the scale purchase.
Purchasing efficiencies attract large scale Oems and accelerate technology adoption akuma solution.
Especially among enterprise customers.
<unk> is the perfect addition to our enhanced channel program, Thanks, with deep roots in the reseller market and expertise in helping organizations to accelerate the adoption and enterprise technology solutions that meet their critical business needs and fit within the rapid evolving ecosystem.
Beyond the critical role partnerships are playing our customer <unk> customer success team remains an equally important component of our strategic plan.
This team has been making it their mission to deliver ongoing value along the customer journey, yielding increased product usage higher NPS and on time.
In fact in Q3, we had our best on time renewals organization, which surpassed our previous record achieved just in the prior quarter.
Our customer success initiatives improved our ability to deliver additional value for our existing customers, which has led to increased retention of our SaaS customers and will drive the SaaS subscription engine we're building.
Our customer success team is not only focused on delivering on time renewals.
Meeting our customers, where they are in their cloud journey.
And creating and creating value along the customer journey, but they are consistently looking for new approaches to engage customers earlier and more often and innovative way.
A good example of this is what we did for one of our customers a large insurance company, which worked with our customer success team to successfully migrate to the cloud.
Now that they have migrated to the cloud.
Seeing improved performance they will continue to lever Jasper CEO townhouse.
Yes, it will.
I'll be moving up to their de facto async library for use across multiple brands.
Vodafone is another example, who is a customer who has been a cooler customer for seven years and successfully transitioned to our cloud solution and the way Covid pandemic.
Vodafone uses our solution to bridge the gap of communication across the 100000 employees with both synchronous and asynchronous studio to both internal and external audiences from one platform.
As you can see our commitment to providing ongoing value to our customers will ensure we have the foundation, we need to build upon and will in turn give us the ability to maintain focused on our direct sales and marketing efforts, while allowing us to be more strategic with our partner led initiative.
And with that I'll turn it back over to you T J.
Thank you rose.
It's become abundantly clear that video is mission critical for enterprise Communications and the new standard is work from wherever whenever.
We believe we're still in the early days of a revolutionary transition where video is the central hub of business communications, whether it be for synchronous or asynchronous events.
We've seen the innovators and early adopters recognize the power of video brands like Cvs AT&T, Toyota and Vodafone, who can always proud to call their customers. We've seen early adopters in large enterprises make the transition to cloud.
Over the next three years, we believe the rest of the market will begin implementing enterprise <unk> enterprise video great solutions at scale.
Because of this massive opportunity and innovation in the market that we're seeing consolidation in the space, including Microsoft's recent purchase of pure five.
Today, the world's most trusted and well known brands rely on <unk> to deliver seamless video experiences that manage secure and measure their content.
We have the right plan and sufficient resources to execute on our plan.
We have the dedicated leadership team with the right experience, who are successfully executing the plan to build a world class SaaS business.
The execution of our strategic plan and cloud first focus has enabled us to deliver strong SaaS growth.
Stablish strong momentum for the balance of 2021 and into next year.
As rose highlighted our partner and direct go to market motions targeting both large and medium enterprises are gaining traction.
Our customer success efforts are deepening customer relationships and driving growth in our subscription IRR and on Prem to cloud conversions.
As we continue to transform our business, we remain focused on delivering robust SaaS revenue growth. We are scaling our SaaS business through our direct sales team our customer success and account management organization and.
And our enhanced channel and partnership ecosystem.
Together these elements will enable us to accelerate the value we can deliver to our customers.
We believe SaaS businesses are built on strong foundations of process people and technology.
And I can confidently say, we have the foundation for our long term success.
Looking ahead, we remain on track to achieve continued SaaS AOR growth in SaaS revenue mix goals. This includes growing our SaaS recurring revenue as a percentage of our recurring revenue to 50%. This year, 60% by the end of 2022 and 70% by the end of 2023.
Longer term, we are confident that could move to emerge as a subscription subscription driven growth company operating at scale benefiting from high margin recurring revenues sustainable and growing cash flow and adjusted EBITDA and net income profitability.
We will now take your questions operator, please provide the appropriate instructions.
Ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then one key on your Touchtone telephone. If your question has been answered he wished remove yourself from the queue. Please press the pound key.
Our first question comes from Steven Frankel with Colliers.
Yeah. Good afternoon C. J I wonder if you might give us some insight on this volume of cloud upgrades or migrations you had in the quarter.
Much of that was driven by the installed base.
Backlog that customers that are looking at this for a while versus either new direct touches from you or channel partner leverage.
A great question, Steve it's definitely a mix of those three.
The <unk>.
Like ROE has talked about one of our larger new logo wins was definitely driven through the partner ecosystem for you know a key portion of that new revenue.
I would say in general our conversions going from on Prem to SaaS typically are in the works for a while as far as the discussions go you know a lot of these large enterprises take a significant amount of time to decide on their key large enterprise initiatives and our team knows sometimes it works those from six months to two years. It just depends on where they are.
We are in that journey.
We'll say that journey does seem to be accelerating a bit in 2021 with more permanent work from wherever in hybrid work.
We're seeing more and we saw more here in Q3 as.
As far as overall for us on that journey, one of the things that we've seen as before we had about 50.
50% of our on premise customers that had made a decision to either upgrade to the latest on prem or go to.
Our cloud solution and now we're at around 60%. So it continues to grow as folks that are driving through either those upgrades or conversions and we saw that continue in Q3.
Okay.
And then you had put out a itself in essence, a self service option could you give us an update on what kind of traction you might be getting with that low end offering.
Yeah that low end offering did not drive as much traction as we had hoped we are actually currently working on reassessing the best way to leverage that low end offering and as we've grown our partnerships and alliances recently such as the TV Cynics announcement, we're now working with some of those key channel partners to look at the best way to drive the lower.
Sized enterprises through that channel partnership to drive more capability than doing that directly ourselves.
Okay.
And would you say in general how much of the bookings this quarter came from the channel.
In general most of the new bookings were influenced by the channel in this quarter.
At the end of the day almost a majority of them I would say we're channel focused.
And so does that have implications for salesforce productivity something that we've been struggling with in 'twenty one.
Where do you think you are in that journey to ramping up the productivity of new salespeople.
Definitely it has a positive impact in that some of our channel partners are into some of the key customers that we're focused on and we are both hitting direct and indirect.
Into our most targeted large and medium enterprises, but what we are seeing is that when we can go in with a partner we ended up having the ability to add even more value to that customer, sometimes bringing unique relationships with that customer already that can help us with.
Better and faster contracting so really key for us as we drive forward that we think that channel and partners are going to be.
Leading but not the only way we go to market. We still have key direct activities that are happening with our direct sales force and they are an important part of our overall mix, but you'll definitely see that the channel is influencing.
Key efforts going forward in addition to direct.
Okay, and then on the gross margin you mentioned that there were a lot of cloud deals this quarter. So is that 90%.
Gross margin that we saw in the software and appliance business with that kind of.
A one off and we Shouldnt think about that as being sustainable.
Yeah, I wouldn't necessarily say, it's going to be the norm going forward I mean, we continue to think that for us.
As we add more and more cloud conversions and new cloud customers.
Our gross margins being in the neighborhood of 76% is more where we would see the business being and.
And that will still have some hardware or on premise deals that come through it's just not a large volume at this point.
Okay, great I'll jump back in the queue.
Thanks, Steve.
Our next question comes from Mike Latimore with Northland capital markets.
Great. Thanks very much.
I guess TJ you did that you just mentioned there you said, 60% of your base have agreed to upgrade either to your latest on premise software or cloud does that is that what you said.
That's correct Mike.
Alright.
<unk>.
I guess you also said that the sales cycle on these things can be 12 to 24 months. So I guess if they upgrade is that should we think about that 60% coming through the revenue in the next 12 to 24 months.
Yes, I mean, one of the unique things on there is different to any conversion and an upgrade on the upgrade it's something that can take place.
I am short a period of a few months to upgrade so it was not as much of a transition but on a conversion.
If they still maintained an on premise solution in that first year, we actually have two from a revenue recognition perspective recognize that perpetual license in that first year. So you won't actually see as much of that SaaS revenue flowing through this year as much as you will have 12 months from now so exactly what you were hitting on and if it is a multiyear deal that could be two or three years.
That drives so you still see some of that coming through as perpetual license even in a conversion if they still maintain an on premise platform, which a lot of customers that they've been on for many years may maintain that first six months or nine months or 12 months, if they choose to do that.
Hum.
How much.
SaaS revenue is embedded in that kind of 60% upgrades the notion.
Yeah.
It all depends on the deal size and it also depends on what their maintenance was before for a particular on premise solution and so it's definitely looking at what the value is of the on premise perpetual license solution. They still continue to utilize and then the remainder remainder of that ends up being SaaS revenue that's recognized in this.
Contract period.
Yeah.
Okay got it.
And then.
The opex level in this quarter or is that roughly what we should kind of keep for next quarter or is it ticked down a little bit.
Yes, I would think you would remain flat on the Opex side, it's approximately where we expect to be going forward I don't think unless you see big.
Additional kicks downward, but I think we definitely have.
Been able to optimize our operational expenses and take that into account here in Q3, and I would expect us to be fairly flat going forward.
And then on Cynics that was interesting when I guess.
What's the next step there do you have to help with educating our resellers or.
Training people or what's the next step to kind of get that channel up and running.
Thank you you hit it exactly right. Yeah go ahead rose yeah. So Mike Thanks for the question because you're right, we all know that.
These partnerships are great wins, but it really comes down to the enablement and the education of the sellers to ensure success and so yes. We are focused now on delivering our message and helping the TD cynic sales teams understand the value proposition, we bring to the ecosystem they have.
It's about understanding who is retiring quota right with too little so we can get to know the individuals and make sure that we are supporting them to execute so it is now an enablement. It is.
Building pipeline and understanding what that joint solution to market looks like and all about enabling our sellers.
And our UA.
Sort of new technology to that channel or if they worked in enterprise video in the past.
I mean, you know this is one of the things when we looked at partnering with them and really starting to understand your ecosystem. It don't and haven't worked with the enterprise grade video solution that we bring so this is a very differentiated offering.
Okay, great. Thank you.
Thanks, Mike.
Our next question comes from Jeff Van <unk> with Craig Hallum.
Hey, Joe Hey, guys. This is Aaron on for Jeff.
Hey, Aaron a couple here, hey, how's it going so.
So first.
A little bit and just kind of update on where your current legacy on premise customers are and you know what are you seeing there as far as churn is concerned.
As far as on premise churn it definitely is something that we see more churn in on premise than we do in SaaS.
We get that if you look at our overall <unk>.
<unk> for combining our entire business and the difference between that and our SaaS IRR, but.
It's something that we have expected from the very beginning of that on premise churn due to both just the market conditions of data centers and offices and where things were going to drive into the future and then you add in Covid and so many people going to a hybrid and remote work environment that then shift to the cloud is something that as you know across the board continuing to happen.
And so from our perspective, we do expect the on premise churn to continue to have some slight decline throughout.
But at the same point, we are seeing very good retention when we look at our SaaS and our R&D. Our overall so we will continue to see that that on premise churn to be higher than what we have seen traditionally from the SaaS base.
Perfect.
And then maybe just some more bound today, given a couple of points here, but any way to quantify what pipelines looking like maybe sequentially or year over year.
So for US I will say that our marketing traction continues to build to help build that pipeline. We have built a lot of awareness in the last quarter with.
New key positioning a new website regular media and social contributions that are driving a lot more awareness around kind of this has created a lot more demand.
We have key targeted accounts that are focused and integrated marketing program that.
And that program has really grown the lead flow here in Q3 over Q2 significantly.
And we have a lot of confidence in creating early stage engagement with those target accounts and so our focus now is on cultivating that engagement as we've talked about before you know large enterprises typically are 12 months to 24 month buying cycles, and so colby that cultivating that engagement and driving more appointments more discussions.
I'll end up driving a lot more logos into the future to become new customers of <unk> and so we are seeing that continue to grow not putting on any specifics on it today, but I will say Q3 was significantly generating a lot more leads from our account based marketing program than we saw in Q2, which we see as continuing to build that pipeline.
Got you that's helpful. And then just a couple more here.
As far as revenue breakouts are concerned.
Yeah, I know you give the service line, but.
And any way to quantify the subscription base, there and how that's trending over time.
Yes, I mean, if we look at the $5 1 million.
Overall, our recurring and we look at 52% of that being SaaS that can give you a feel for what that SaaS element is and if we look back in the previous quarters. You can do the reverse math on that but we were about 49% in Q2 and about 46% in Q1. So that can show you. The continued growth of SaaS recurring revenue that's part of that.
Gotcha Gotcha, and then last one for me any update on them now.
The days gone just the the search for a new CFO.
The search for a new CFO is going very well, we don't have an announcement to make today, but we're progressing very well with that and very focused on getting the.
The key talented resource to join the leadership team here with us and we feel very good about that search.
Perfect. Thanks, that's it for me guys.
Thanks, so much.
Thank you at this time. This concludes the company's question and answer session. Mr. Question was not taken please contact <unk> IR team at Hulu Gateway IR Dot Com I would now like to turn the call back over to Mr. Kennedy for his closing remarks.
Thank you so much Kevin I appreciate it.
Really just appreciate all the questions today. This concludes.
Our discussion and I want to thank everyone for joining today and look forward to speaking again soon thank you all.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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