Q2 2022 Qumu Corp Earnings Call
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I would now like to turn the call over to Matt Glover. Sir, you may begin.
Thanks Chris and good afternoon everyone. After the market closed today, Kumu issued a press release announcing its financial results for the second quarter ended June 30th, 2022, a 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 QEMU's SEC filings, specifically its Form 10Q and financial results press release, for a more detailed description of risk factors that may affect the company's results.
During the call today, management will discuss adjusted EBITDA, a non-GAAP financial measure. In the company's 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 financial measure, including a reconciliation of this measure with its comparable GAAP measure. non-GAAP financial measures are not intended to be considered in isolation from, substitute for, or superior to GAAP results. The company encourages you to consider all measures when analyzing its performance.
I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the investor relations section of Kumu's website. Now I would like to turn the call over to Kumu's president and CEO , Rose Bentley. Rose.
Thank you, Matt, and good afternoon, everyone. We appreciate you taking the time to join our second quarter conference call. To begin, we remain incredibly encouraged by the continued progress we are making in our transformation to SAS. The strategic investments we've made over the last 18 months and our team's ability to execute against that plan are driving strong operational and financial results.
As we continue to grow our cloud business, build our partner ecosystem, and further transition to a purely subscription-based model, we expect our performance to improve throughout the balance of 2022 and beyond.
Highlighting our success in the quarter was a 10% increase in both SAS Revenue and SAS ARR.
Our SAS revenue as a percentage of total reoccurring revenue in Q2 accounted for 61% up from 60% in the prior quarter and 49% in Q2 last year.
This is in line with our goals and has us well on track to achieve our staff growth targets for 2022 and 2023.
Our cloud transformation initiatives and increased SAS contributions also helped produce a gross margin of 75.4 during Q2, which we expect to continue as SAS becomes a greater portion of our overall top line.
Along with our transformation to the cloud being on target, we are progressing and marching towards cash flow break even.
We used $4.9 million and $3.7 million of cash for operating activities in Q1 and Q2, respectively.
We expect cache use in operating activities to come down significantly in Q3 and Q4, ensuring we have the runway we need to complete our transformation to the cloud.
Now, we have a lot to cover today, so before I go any further into updates from operations, I'll now turn it over to our CFO Tom Krueger to provide more detail on our Q2 financial performance and key staff metrics.
Before I go any further into updates from operations, I'll now turn it over to our CFO Tom Cougar to provide more detail on our Q2 financial performance and key SAS metrics. Tom?
Thanks, Rose. It's a pleasure to be speaking with you today.
Like last quarter, I will expand on a few items not already addressed by ROSE and are included in the earnings release this afternoon.
The metrics that we use to measure the success of our status transformation continue to move in the right direction and reflect our team's continued execution of our growth strategy.
Now let's look at them.
As Rose highlighted, SAS revenue for Q2 2022 increased 10% to $2.8 million compared to $2.5 million in Q2 2021.
SaaS Annual Recurring Revenue, or ARR, for Q2 increased 10% to $13.3 million from $12.2 million in Q2 2021 and increased 2% sequentially from $13.0 million in Q1 2022.
SAS revenue for Q2 accounted for 61% of recurring revenue, up from 60% in the prior quarter, and 49% in Q2 2021.
As a percentage of total revenue, SAS revenue accounted for 54% unchanged from Q1 2022 and up from 43% in Q2 2021.
Our SaaS retention rates remain strong with our gross retention rate, or GRR, of 90% at quarter-end and net retention rate, or NRR, of 103% at quarter-end.
Moving down the income statement.
For the 2nd quarter of 2022 gross margin was 75.4%. Up from 71.5% in Q1 2022.
At 73.6% for Q2 2021.
The improvement in gross margin was due to our continued shift from on-premise to the cloud through our SaaS-focused business model. We expect to maintain mid 70% gross margins for the balance of 2022.
Moving on to operating expenses and adjusted EVA tile, a non-GAAP measure.
Our transformation is also focused on rationalizing our cost structures and realizing efficiency through this cash flow.
Our total operating expenses in the second quarter of 2022 was $7.0 million, down 15% sequentially and 27% year over year.
It's important to note that our optics for the second quarter of 2022 reflects a one-time, non-cash gain from the reversal of stock-based compensation related to our prior CEO's departure.
We anticipate that our normalized FX run rate for the third and fourth quarters will be approximately $7 million per quarter.
Of course, we will continually look for ways to further optimize our cost profile without sacrificing our ability to execute our growth strategy.
Adjusted EBITDA, a non-GAAP measure in Q2 2022 was a loss of $3.1 million, an improvement compared to a loss of $4.1 million in Q1 2022 and a loss of $4.5 million in Q2 2021.
A reconciliation of adjusted EVA to net loss, a gap measure, is included in our earnings releases for the respective periods.
Net loss in Q2 2022 totaled $2.6 million, or 15 cent loss per basic and diluted share.
This compares to that loss of 4.6M dollars or 26 cents for loss per basic and fluid share. For Q1 2022 and that loss of 4.3M dollars. Or 24 cent loss per basic share and 30 cent loss per the literature in Q2 2021.
shifting gears to the balance sheet
At quarter end, we had 6.4M of cash.
and cash equivalents and dough debt, which is in line with our internal plan.
The sequential decrease in cash reflects the repayment of the 5 million dollars we borrowed on our line of credit.
As Rose mentioned.
Net cash used in operating activities improved to 3.7 million dollars. Compared to 4.9 million dollars in Q1 2022. And 6.1Million dollars in Q2 2021.
We expect a significant reduction in net cash use and operating activities in the 2nd half of 2022.
We continue to believe that our cash position and available liquidity resources provide sufficient runway to execute our SaaS growth transformation strategy and achieve cash flow profitability.
That concludes my prepared remarks. I'll turn it back over to Rose to discuss our strategy, key partnerships, and outlook. Rose.
Thanks, Tom.
Kumu's improving financial performance and strong, fast key performance indicators reflect the increasing success and momentum of our partner-led sales strategy and our current customers growing their investment with Kumu as their trusted provider of both live and asynchronous video content.
For context, in Q2 we added new customers at twice the rate of Q1.
Additionally, more than 80% of our new bookings in the first half of 2022 were sourced or influenced by our partners.
of which only one did not include Kumuth cloud solution.
In Q2, we run a multinational specialty chemicals company and a global professional services firm.
both of which are ranked in the Global Fortune 2000.
Another noteworthy customer, Win in Q2, was with Protha, a UK-based leading provider of high-quality, customized learning resources.
ProPrep is doing important work to support STEM students and educators and to enhance the already proven value of video as an educational tool.
Kumu's video engagement platform enables ProP to ingest, tag, and sort video content at scale.
Videos are easily searchable with the degree of flexibility students need to customize study materials based on the institution they attend as well as the courses they are taking.
Online learning has increasingly been in the spotlight over the last two years and we are thrilled to be working with programs to help make it more accessible and effective.
The last Q2 customer win I'd like to highlight is a top 20 ranked health insurance provider.
and included a three-year commitment based on our capability to deliver a best-in-breed customer experience and our ability to leverage our partner ecosystem.
As one of the U.S.'s largest integrated healthcare companies, this customer's requirements were complex.
You're probably right.
excuse me, through collaboration with our partners, collective for network stabilization, and socialized for video production. Kumu was uniquely qualified to meet virtually all of the healthcare providers extensive requirements for its new enterprise video solution.
We were able to successfully meet the customer's needs without incurring the capital expense or time required to build out these capabilities in-house.
Overall, our growing partner ecosystem gives us the opportunity to deliver more value to our future and current customers by providing them with the end-to-end solution they require to deliver against their video needs.
Our continued investment in our partner-led strategy keeps our customers at the heart of all that we do, in every decision that we make, and on a path to leverage the best in breed video solution at scale.
Simply put, our partner network is letting us compete and win opportunities that we could not pursue on our own.
Our partnership with GovSmart, which we formed late last year, broadcasts Koomoo's enterprise video capabilities to hundreds of government agencies.
As we move through the federal government buying season, we are excited to continue to expand our footprint in the sector with a partner that truly cares about their customers and understands their unique needs.
Although we're only five weeks into the third quarter, we've already secured a new deal with the unit of Department of Defense and received additional RFPs as well.
For GovSmartt customers, our ability to provide reliable and secure video communications
Solve complex behind-the-scenes network issues, consistently deliver a high-quality experience, and provide insights to improve engagement and effectiveness, is compelling and differentiating.
And these capabilities are equally compelling to other markets with complex needs and stringent security and regulatory requirements.
That's why our new partner, AT&T, recently turned to Kumu to help a major financial services enterprise address challenges it was encountering when hosting multiple live meetings at once across the business.
I recently met with several of their senior executives to discuss ways to further extend our partnership across more of AT&T's verticals and markets.
We're working closely with their team to build Pipeline and we believe we are well positioned to close on several deals by year end.
not just large enterprises like AT&T or GovSmart that recognize the power of Kumu's cloud-based video platform.
During QQ, Waynehouse Research positioned Kumu in the top right quadrant of its newly revised vendor landscape for behind the firewall streaming solutions. This is the seventh time Kumu has been placed in the top right quadrant for the Enterprise video landscape.
AT&T and other global 2000 organizations trust Kumu for their video communications and achieving their business goals at scale.
In fact, over the last 12 months, our customers have added 51% more authorized users to our platform.
And we have seen an increase of asynchronous video views go up by over 30%.
The growing investment from our enterprise customers
is exemplified by our average annual contract value, or ACV, increasing by 474% year-over-year for the first half of 2022.
Triple digit growth in the contract size of our new customers demonstrates our ability to deliver deeper value through additional use cases.
when we acquire new customers.
Furthermore, this substantial growth helps to expand our footprint and create additional value realization for our new customers.
In parity with this, our SAS ACV for the first half of 2022 increased by 559%.
compared to the same year-ago period demonstrating growth in our cloud, on-prem and hybrid customer contracts.
The growth momentum in enterprise video use corresponds with how organizations increasingly operate with end-users working from anywhere, on any device, at any time, and connecting to corporate resources and internet accessible cloud platforms.
Companies globally continue to be challenged by the pandemic, constrained labor, and global shortages of raw materials.
It has become more critical for them to rethink and re-prioritize how they engage with their employees, customers, and partners making video.
a critical tool in their tech stack.
It is the cornerstone of digital transformation for the enterprise.
Our organizational theme Entering 2022 was execution.
The progress we've made and the results we've delivered in the first half of 2022 validate that we are executing our strategy and building momentum.
Remote work, whether it be fully remote or hybrid, is here to stay.
which goes well for continued demand for enterprise video capabilities.
Our ability to win new business at an accelerating clip validates that our product
if needed and enterprise capable.
Our partner ecosystem is proving to be a compelling differentiator, and our SaaS transformation is working, validated by our improving KPIs, robust gross margins, and reduced cash burn.
In summary, CoOMIS transformation is well underway.
Our investments in 2021 are yielding strong returns in 2022.
Our business is optimized and now hitting its stride. Our plan supported by our solid task position and available resources that provide significant runway to execute our growth strategy.
We entered the third quarter with a record pipeline of opportunities that we are converting at an escalating pace.
Our partner with Sales strategy is gaining momentum and creating repeatable sales motions that gives us confidence and our ability to secure a record number of new logos.
Going forward, we continue to expect our SAS reoccurring revenue as a percentage of total reoccurring revenue to be at least 65% by the end of 2022.
and 75% by the end of 2023.
We continue to expect to cross over to cash flow breakeven during 2023.
The leadership and board remain confident that Kumu will emerge as a subscription-driven growth company operating at scale.
benefiting from high margin recurring revenue.
sustainable and growing cash flow, and adjusted EBITDA and net income profitability.
We will now take your questions. If you have any questions, please provide the appropriate instructions.
Thank you.
As a reminder, to ask a question, you'll need to press star 1 1 on your phone.
Please stand by as we compile the Q&A roster.
1 moment.
Our first question will come from Mr. Jeff VanRee of Craig Holland. Please proceed.
Great. Hey, Rose. Hey, guys. So a couple questions. Maybe first, Rose, on the pipeline, sounds like you're happy with the bookings momentum and the pipeline growth. Can you dial that in a little more? Is there something quantitatively maybe you could share about the size of the pipeline and then any insights into the composition of the pipeline and then along that same vein also some sense of magnitude of the increase in bookings?
Thank you, Jeff. I appreciate the question. Yes, as we think about how we are building pipeline, we continue to see the magnitude grow specifically on the need at the enterprise. You hear me spoke in my prepared remarks around just the growing momentum and hitting twice as much logo volume in Q2 compared to Q1, and we expect to carry that momentum into Q3. If you think about the pipeline, it's giving you the pipeline coverage, which you would expect to see in the next few weeks.
The
I think it's going to be.
I'm not sure the exact number I think it's going to be close to 30Million of total total. We may need to get to it'll have to be, you know, we're going to we're growing right now and we'll continue to grow and we'll reach there at some point next year.
Okay, all right and then last just in terms of buyer behavior I mean obviously inflation, wage pressures, recession coming out of COVID, all kinds of dynamics going on. Can you just talk about sort of the backdrop and to the degree that competitive landscape is relevant part of that as well?
Yeah, certainly Jeff.
So as we look ahead and as we really think about how we plan the business, we are being very cautious and optimistic around how we make sure we're preparing the business for the future. When I think about what we're accomplishing today and what we are focused on today on how we do that is really on delivering our bookings plan and keeping our focus on retaining the customers we have and scaling into the enterprise. When I look at the competitive landscape...
We continue to be turned to by the top enterprise brands to solve complex problems for them.
So the competitive landscape remains consistent for us and we expect to continue our growth in enterprise specifically and we continue to expect the dedication that we are and internally expect on bookings. That is our number one focus on how we continue to deliver for you Jeff.
Sounds good. I'll leave it there. Thank you.
Thank you.
Thank you.
And again, to ask a question, please press star 1 1 on your phone. Stand by as we compile the Q&A roster.
At this time, this concludes the company's question and answer session. If your question was not taken, please contact QMOOS IR team at 6
QUMU at GatewayIR, all one word, dot com.
I will now like to turn the conference over to Rose Bentley for closing remarks.
Thanks, Chris, and thank you everyone for joining our call this afternoon. With so much underway here at Kumu, I've begun to issue periodic updates on our social channels to highlight our company's operational progress and milestones.
Please follow us on Kuma's Twitter or LinkedIn to automatically receive these updates. I look forward to sharing more about our ongoing transformation in the coming weeks and months. Back over to you, Chris. Thank you so much for being here.
Thank you.
This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.
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