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spk00: Ladies and gentlemen, thank you for standing by, and welcome to the Kumu Third Quarter 2020 Earnings Conference Call. At this time, our participant lines are now listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference to your speaker today, Dave Vissarro. Chief Financial Officer. Please go ahead, sir.
spk04: Thank you, Victor, and good afternoon, everyone. After the market closed today, Kumu issued a press release announcing its financial results for the third quarter ended September 30th, 2020, a copy of which is available on the investor relations section of the company's website. During today's call, we'll make certain statements with respect to the company's expected financial results, the impact of COVID-19 on the use and adoption of video in the enterprise, The company's go-to-market strategy and efforts designed to increase the company's traction and penetration with our customers. 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 management's opinions only as of the date of this call, and the company undertakes no obligation to publicly update, revise any of the forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to Kumu's SEC filings, specifically its Form 10-K and 10-Q and the 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 related to this non-GAAP measure. including a reconciliation of this measure with its comparable gap measure. Non-gap financial measures are not intended to be considered in isolation from, a substitute for, or superior to gap 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 TUMU's website. Relatedly, a few weeks ago, We released a fully redesigned investor relations website, making it easier to stay informed about all investor relations activities and news events at Kumu. Among the new features of the website is an upgraded email notification system that provides subscribers with real-time press releases and SEC filing notifications. If you're interested in following our progress in a much more user-friendly manner, I encourage you to go to our website at ir.kumu.com to sign up for the alerts. You will have the option to receive press releases as well as annual and quarterly reports, insider transactions, and proxy information. On the call with me today is our president and CEO TJ Kennedy. After I review the financial results for the third quarter and nine months, nine months periods, TJ will discuss our operational progress as well as the results of our 90 day strategic roadmap exercise before finishing with an outlook for the remainder of this year, as well as 2021. As you can see from our earnings release, our financial results for the quarter were consistent with our strategy to drive growth of subscription ARR and recurring revenue. Highlighting our continued execution of this initiative was a 28% increase in subscription, maintenance, and support revenue, along with an 18% increase in subscription annual recurring revenue, or ARR. which collectively helped us to generate robust gross margins of 75%. Now, let's look at the results in more detail. Revenue for the third quarter of 2020 was $6.6 million compared to $6.7 million in Q3 of last year. The slight decrease in revenue is primarily due to lower software license and appliance revenue offset by higher subscription maintenance support and support revenue, as well as higher subscription bookings. For the first nine months of 2020, revenue increased 16% to $22.2 million from $19.1 million in the same period last year. The increase in revenue was primarily due to a large customer order received at the end of the first quarter of 2020. During the third quarter, we added eight new cloud customers, one new enterprise customer, and expanded or converted four enterprise to cloud or cloud hybrid customers. It's worth noting that the four hybrid expansions or conversions we completed in the quarter represented an average of 28% ARR uplift on their base renewals. For the first nine months of 2020, we have secured 23 new customers and deployments. In comparison, we secured 20 new customers and deployments for all of 2019, meaning that we have already exceeded our 2019 new enterprise and deployment count with three months remaining in the fiscal year. Subscription maintenance and support revenue for the third quarter of 2020 increased 28% to $5.3 million, up from $4.2 million in Q3 of last year. The 28% increase was driven by new cloud and term deals signed in 2020, as well as an increase in cloud usage. Kumu continues to shift more and more of our revenues to cloud SaaS subscription revenue. For the nine-month period, subscription, maintenance, and support revenue increased 2% to $14.2 million from $13.9 million in the comparable period of 2019. Subscription annual recurring revenue, or ARR, increased 18% to $10.9 million from $9.2 million in Q3 of last year. Well, starting this quarter, as we promised, we will be disclosing our SAS customer retention metrics in our earnings calls and our releases. At quarter end, our gross renewal rate, or GRR, was 91% compared to 89% at the end of Q3 2019. Our net renewal rate was 119% compared to 108% at the end of Q3 2019. And lastly, our dollar value retention was 94% compared to 93% at the end of Q3 2019. Deferred revenue at the end of the quarter was $15.9 million, up 5% from the prior quarter and up 47% from Q3 of last year. Moving to margins, gross margin for Q3 2020 was 75.1%, up from 69.8% in Q3 of last year. The increase was primarily due to a favorable sales mix And an increase in a higher margin cloud SAS revenue for the nine month period gross margin was 69.9% compared to 73.3% and the comparable period of last year. The decrease was primarily due to a higher mix of appliance revenue and the nine months ended of 2020 which generally carries lower margins. Relating to profitability, net loss for the third quarter of 2020 was $1.9 million or 14 cents per basic and diluted share. This compares to $221,000 or a two cent loss per basic and an 11 cent loss per diluted share in Q3 of last year. The higher net loss in Q3 of 2020 was primarily due to a $1.3 million change in our warrant liability. a one-time severance charge of $400,000 related to the CEO transition in July of 2020, as well as $100,000 of transaction expenses related to the previously announced terminated merger with Cinecor. For the nine-month period, net loss was $5.2 million, or $0.39 loss per basic and diluted share, compared to $4.8 million, or 49 cent loss per basic and diluted share for the comparable period in 2019. The higher net loss in 2020 was primarily due to $1.6 million of transaction expenses related to the terminated merger with Cinecor and one-time severance charges of $400,000 related to the CEO transition. Adjusted EBITDA loss, a non-GAAP metric, For the third quarter of 2020, totaled $839,000 compared to a loss of $535,000 in Q3 of last year. For the nine-month period adjusted to the loss total of $1.3 million, this is an improvement from the loss of $1.8 million for the comparable 2019 period. At quarter end, we had healthy liquidities. Our position finished with $11.4 million in cash and cash equivalents, which was up $1.5 million from $9.9 million at June 30, 2020. Switching gears to our outlook, as we talked about on prior calls, Kumu provides revenue guidance based on current market conditions and expectations, including the unknown financial impact that COVID-19 will have on economies and enterprises around the world. Based on our Q3 financial results and pipeline, we currently expect revenue for fiscal 2020 to be approximately $29 million, representing growth of 14% compared to $25.4 million in 2019. Our building subscription ARR deferred revenue and expanding pipeline of business gives us good visibility and confidence. For a more detailed analysis of our financial results, Please refer to today's earnings release, as well as our 10Q, which we plan to file by November 3rd. This completes my financial summary. I'll now turn the call over to TJ to discuss our operational progress and outlook.
spk03: TJ? Thank you, Dave. It's been a pleasure to have this opportunity to speak with everyone today. It's been three months since I joined Kumu. Since we last spoke, the leadership team has conducted an exhaustive 360-degree review of our business, our product offerings, geographic markets, target customers, go-to-market strategy, and business model. This process included the entire management team and resulted in a new strategic roadmap for Kumu going forward. And the output of the strategic roadmap process will guide our investments, our areas of focus, and our day-to-day business. At a high level, the process of building the strategic roadmap confirms several things, including Kumu's competitive strengths and advantages. which are scaling live and on-demand video delivery to 100,000-plus users, either using our own platform as a front end or by extending the reach of any standard video conferencing or enterprise collaboration application, securing both the delivery of video and storage of our on-demand video assets, streaming internal and external enterprise video via a self-service model, and storing and managing video assets in customized portals and increasing the value of that video by making it shareable, searchable, and accessible to a global audience. This review process also confirmed our company's core value proposition. Simply put, Humor bridges gaps in enterprise communication. We provide maximum extensibility. including the ability to integrate with any video conferencing or workplace collaboration application like Zoom, WebEx, Teams, Google Meet, and Slack. But keep in mind, our Kumu cloud platform is very different from the above cloud applications. Kumu is not a video teleconference platform. We will let the companies mentioned above fight over that space. Kumu enables live streaming events with over 100,000 plus attendees. We secure the delivery and storage of that video, We enable video on demand for millions of users internally and externally to the enterprise. And our video content management powers enterprises to be more effective and efficient with their video assets. Our advanced analytics cover comprehensive real-time and on-demand reporting for both user engagement and network health. And our robust content management capabilities allow for editing, storage, playlist development, portal design, search, indexing, and access permissions. In addition to identifying key areas of strength, the strategic roadmap also revealed where Kumu needed to improve, in some cases substantially, by focusing on greater efficiencies, new and clearer strategies, simplified pricing and processes, and expansion into adjacent high-value markets. Some of our major takeaways were the realizations that we have been under investing in our cloud platform, under emphasizing the value of our product for small and mid-market enterprises, and under utilizing a more targeted channel strategy. To be clear, our internal review was candid and was a frank process that while difficult and requiring some serious organizational changes, this will ultimately put us on a path to long-term success. one that will deliver improved value to our customers and our shareholders. With this in mind, we have already implemented a number of key changes. We have built out a new customer success organization that will be led by Chad Sears, who has recently accepted the role of Chief Customer Success Officer. The creation of this new organization will place all of the previously disconnected teams that interacted with customers into a single team under a single leader. This includes our organization's such as professional services, customer success, customer support, product management and account management teams all working in concert to ensure that our platform reduces risk for CEOs and CIOs of different enterprises. As part of this change, we will also be increasing our goals for customer retention going forward with the expectation of even higher retention in 2021. We will also be consolidating our global sales and marketing teams and all revenue operations under a new chief revenue officer role to improve the collaboration and execution of our sales and marketing teams. We will also be expanding our sales and marketing efforts, not only in our existing markets, but also to mid-sized and smaller enterprises. Included in this change is our new build and price tool, as well as our new e-commerce storefront targeted at medium and small enterprises. Humu is known for our large enterprise customers with 50,000 to 325,000 plus employees. But we are also now targeting medium and smaller enterprises who value our live broadcast and streaming capabilities, secure video delivery and management, video on demand capabilities, and robust video content management. Driving our revitalized growth plan is the ongoing fundamental shift in enterprise video usage. It is clear that enterprise communication has changed forever. and the COVID-19 pandemic has forced organizations worldwide to rapidly adopt and expand the use of video, both internally and externally. We are still dealing with all these implications today through continued office closures, travel restrictions, event cancellations, and security concerns, and at the enterprise level, scalability issues as well. While standard video conferencing and collaboration apps were able to meet the initial need for business continuity, we are now seeing a second wave of needs, where enterprises are exceeding the upper limits of what standard video conferencing and internal collaboration tools can deliver and manage. And this is the area where Kumu excels and is distinctly differentiated. As part of the deep dive we have gone through for the strategic roadmap, we focus on determining where in the video market Kumu's trusted enterprise solution fits. What we determine is that we do not compete in the basic video teleconferencing and small team collaboration spaces that are overcrowded with companies like Zoom, Cisco, WebEx, Microsoft Teams, GoToMeeting, Google Hangouts, and so on. TUMU is the market leader in internal and external live streaming and broadcasting to more than 50,000 users and the leader in providing secure, on-demand video storage and delivery with enterprise-grade video content management. During this pandemic, many enterprises have added video collaboration technologies. And now we are seeing these enterprises contact Kumu with the need to manage all of that content, leverage it for asynchronous communication, and maximize on-demand video to expand their communication capabilities internally and externally. And we believe in 2021, enterprises will require even more help from Kumu to meet their business objectives and to thrive in the new work from anywhere environment. As a concrete next step, We've leveraged these key findings to cement a new strategic roadmap that will enable us to accelerate Kumu's growth and drive consistent profitability. And while I was extremely busy first three months at the company, I can honestly say that I am even more excited about the potential Kumu has to become a much larger organization. I believe we have an enormous opportunity in front of us, and with the right plan, people, and execution, we will be a leading cloud-based enterprise video technology provider for the future. With many of our roadmap changes implemented in the coming months, we believe healthy double digit top line growth and cash flow positivity next year are within reach. More specifically, our successful execution against this plan, which has already begun and will accelerate in the balance of 2020, is expected to drive revenue growth in excess of 20% in 2021 as compared to our current 2020 revenue estimate. Our sales pipeline, strong deferred revenue, and our growing annual recurring revenue all give us confidence about our prospects for revenue growth in 2021. Overall, the enterprise video industry is alive and well. We are continuing to see interest from a new sales perspective as well as renewals and cloud conversions. I'd like to provide a sample of just some of the major wins from the quarter underlying this ongoing trend. In Q3, we closed new logo wins with global aerospace and defense company, Northrop Grumman, as well as AOK, the largest health insurance provider in Germany. We also drove on-premise to cloud conversions with CVS Pharmacy and a major US banking institution, Truist Financial. And we secured large renewals with Lockheed Martin, as well as the seventh largest bank in Europe, as well as a top 20 UK law firm and a top three executive education institute, among others. Customers come to Kumu because they require more than a simple small scale video conferencing or team collaboration solution. to achieve true business continuity. Kumu provides reliable, secure, enterprise-grade infrastructure that supports an enterprise's permanent shift to a new global work-from-anywhere environment. Our customers choose Kumu because we have a highly scalable platform, an exclusive focus on the enterprise, robust video on-demand capability, world-class professional services and support, and market-leading security. Last year, Kuma received the highest score in the security category in the 2019 Gartner Critical Capabilities for Enterprise Video Content Management Report. We offer our customers data and application protection, identity protection and user controls, as well as viewer tracking, live monitoring, and audit controls. Enterprise video needs to be easy to use and reliable. We've recognized that companies are willing to pay a premium for that reliability, and many of our current customers have gladly expanded their video platform commitments after a positive experience. We do have very user-friendly on-demand tools, and we are recognized as a reliable video content management system all enterprises need, even if they are already using the existing video teleconference solutions. For example, earlier in the quarter, we built and deployed a new app that enables Zoom to be used as a front end for any large-scale video streaming broadcast, while Kumu handles all delivery, management, and video security. This integration will change the game for organizations looking not only to scale Zoom events for over 50,000 attendees, but record and manage some or all Zoom meetings across the organization in a secure, searchable, and on-demand asset. There's no doubt that Zoom is a popular video conferencing platform. They've made it easy for people to lead or participate in video based meetings. And their technology is one of the reasons so many enterprises were able to bridge the collaboration gap left by COVID-19. But as work from home mandates and event cancellations continue to be the norm, enterprises need more than what the standard video conferencing platforms offer. They need more scale, more capability, more video on demand, and more robust video content management features. These types of meetings and events are what Kumu does exceedingly well. We enable standard video conferencing platforms to reach thousands, tens of thousands, or even 100,000-plus people with no loss of video quality and device-independent capability. Our strategic plan involves investing in our cloud business to take advantage of current market trends and customer needs. Along this line, at the end of the third quarter, we unveiled the Kumu Cloud Build-in Price Tool, which allows users to quickly customize an annual cloud video subscription based on parameters like storage and bandwidth needs, distribution requirements, authenticated user limits, and more. We have also learned that through the use of video within enterprises that it continues to climb, organizations are pushing technology acquisition cycles at a significantly faster pace than they were in the past. According to Wayne House Research, The enterprise streaming product category is expected to become a $4.6 billion total market by 2024, growing at a compound annual growth rate of 15% in that time. That same report also found that the biggest gains in streaming spending in 2020 will come from firms with fewer than 1,000 employees. For companies with at least 500 employees, at least 50% anticipate spending more than $100,000 on streaming technology this year. The dramatic increase we've seen in the usage of our cloud platform underscores this trend. In fact, in Q3 alone, we hosted 30 million viewers on the Camoo cloud platform, which is up 28% from the prior quarter and 911% from Q3 last year. Realistically, today's purchasers of cloud-based video technology don't have time to navigate a buying cycle that includes an RFI or request for information, a sales demo, a one-month proof of concept, multiple requirements gathering workshops, and three weeks of contract negotiation. With this in mind, our new Kumu Cloud build and price tool will cut weeks, if not months, out of the sourcing to solution timeframe. As a company mandate, we will continue to focus in this area on building additional customer-focused tools to accelerate that process even further. Beyond launching new innovative products for the current market, we are also hard at work implementing longer-term strategic initiatives to effectively and profitably scale Kumu to the next level. One of these initiatives is expanding and diversifying our go-to-market strategy, which will provide even more balanced and sustainable growth. The fact is video is quickly going down market. Today, even 40-person organizations can make $50,000 investments in video technology. While Kumu has historically targeted growth via very large enterprise sales and only opportunistically pursued additional opportunities, we are now making a concerted effort to expand into the mid-market with offerings for small to medium-sized enterprises. We want to make the Kumu brand more approachable to mid-market firms and are developing a go-to-market approach that is more easily digestible for small and medium-sized enterprises abroad. For example, we launched an e-commerce self-service solution that enables a highly automated and low-touch sale of Kumu's cloud-based solution to small and medium-sized organizations. We have very user-friendly video on-demand tools, and we are recognized – excuse me. Now that the SMB space can easily access and benefit from Kumu's best-in-class platform for creating, managing, and delivering live and on-demand video at scale, Because of a lighter sales effort involved in this largely automated self-serve model, we are able to dramatically reduce customer acquisition costs, thereby enabling the small and medium-sized enterprise market to become a more financially viable channel for us. I look forward to sharing more in our efforts in this area in the coming months. Our company has successfully been executing and even growing our business during the pandemic. We have offices in California and Minnesota and the United Kingdom and India. Kumu, as a company has essentially been 100% remote since the pandemic began and we believe we are working with a significant advantage. We are already a veracious users of video on our company's mission and we have been guiding our customers as they now move from using live video, video on demand and video content management for internal functions to now using that same video capability to interact with partners, customers and patients. We are looking closely at our future footprint and looking to move more of our team to work from anywhere in the future video first is the future of enterprise communications and we plan to push that forward by practicing what we preach to live and on demand asynchronous communication. Over the last few months, we believe we have improved internal communications, while decentralizing management moving to a more agile approach. We look forward to sharing our lessons learned with our customers about how we have leveraged our technology to enable essential business activities and grow successfully. Today, Kumu has a globally distributed employee base spread across three continents with a median employee tenure of five and a half years. And while we are a technically enabled business, we recognize that our talented people power this engine. I've discussed many new plans this afternoon, many of which will require months and years to fully see through. My hope for today is that we've left you with a clear picture of what the Kumu of tomorrow will look like. It is our belief that these bold actions will all lead to improved results, agile processes, and technology improvements that will accelerate growth incrementally in 2021 and beyond. In summary, Kumu is at the forefront of a massive transformation in the way organizations drive communications. Going forward, we plan on riding this wave into becoming a growing SaaS-based cloud-first company. This transformation has produced a record sales pipeline and strong deferred revenue, which coupled with our growing annual recurring revenue gives us confidence and visibility into not only our growth outlook for 2021, but for the following year as well. Longer term, we believe our building momentum and strategic initiatives will translate into sustainable, adjusted EBITDA profitability and ultimately net income profitability in the years ahead. That concludes our prepared remarks for today. We'll now open it up to questions. Operator, please provide the appropriate instructions.
spk00: Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And our first question will come from the line of Jeff Van Ree from Craighalen. You may begin.
spk01: Great. Thanks for taking my questions. That was a mouthful, TJ. Sounds great. I appreciate the update. I really appreciate the transparency, and obviously you guys have been very, very busy there, so thanks. A number of questions for me. First, just to backfill a little bit, you went through the thoughts on 21, and I missed a little bit in there. You mentioned something about cash flow. You said revenue growth in excess of 20% for 21, and there were a few other things you mentioned, including one on cash flow. Can you just hit that again quickly?
spk03: Yeah, let me go back to it here. So I think what we noticed was expected to drive revenue growth in excess of 20% in 2021 as compared to our current 2020 estimate. Sales pipeline strong deferred revenue and our growing annual recurring revenue give us confidence for additional revenue growth in 2021. As far as cash flow, I think the biggest thing that we looked at is that our goal is to obviously become adjusted EBITDA positive. We haven't put any exact timeframe on that by quarter, but we believe that this particular growth will drive us to that positivity next year.
spk01: Got it. Got it. Okay. And then so obviously I think the strategic review seems to have yielded a number of things, one of which is it seems you see a lot of opportunity down market. in the cloud, and you've obviously put the self-enablement tools out there and some other things to try to get that in motion. Talk about the advantages that you see for the Kumu platform and SMB. Historically, Kumu is known to be rock solid in the massive events. You mentioned the 100,000-plus live events where you've built your historical reputation, but talk about SMB and what's there, where are the existing solutions falling down, and why does that look like an opportunity for you at this point?
spk03: Yeah, very good question. I think, Jeff, the main thing that we see is that we have been a major risk reducer for CEOs and for CIOs and for executives at major Fortune 500 and Global 2000 companies who need to hold these very large events. And for a lot of smaller midsize enterprises, even if the company may not be large, they might be holding events that have 1,000, 5,000, 10,000, 50,000 plus attendees that are there. And they also needed to run seamless. One of the things that we see in the market space is that a lot of folks are a mile wide and an inch deep, and they may have a bunch of different features, but they don't have the same kind of reliability and ability to scale to 100,000-plus users like we do. They also weren't architected and built in a way that allows for these very large seamless meetings where you don't have interruptions from different users. You don't have too many competing things going on that really decrease the reliability of these large sessions and the live streams themselves. We also have a lot of professional services and key technical experts that have worked with a lot of these enterprises to make sure that they know how to run these amazing events and have them go off without a hitch. And that is what is so critical to most CEOs out there today. And they're using these tools much more. Prior to this year, A lot of times these events were very much on-site CEO town halls or things of that nature, and now they're very much off-site 100%, or in the best case, maybe a hybrid scenario. But video is absolutely critical as part of them. So what we're also seeing is the volume of these events going drastically up, which means that there's a much greater chance that people will have problems. There's also a much larger number of users per event, because before it was many times just people who were not on site who might have been dialing into an event. And so instead of that being, say, 20% of the company's attendees, it's now 100% of the company's attendees, or a very large number. And so that ability to be super reliable, super low risk, is something that we believe we've proven with the largest enterprises in the world. We have a very good global footprint, both in APAC and EMEA and the Americas, and I think that our global companies that trust us have seen that reliability. We believe that there are both small and medium-sized enterprises who want that level of reliability and want to go with a platform that ensures that they will have great events as well, and I think that's something that we're really going to go take advantage of.
spk01: Yeah, I got it.
spk03: Go ahead.
spk04: I'd also note, I think TJ touched on some great highlights, I think. Additionally, where there are other competitors in the marketplace where we have always differentiated is really security, scalability, and management of the video assets. And so the robustness of our platform combined with what's in the cloud hybrid solution set, which is an easy to use, easy to direct yourself through the platform solution set, is very well positioned in light of the totality of that offering for going ahead and grabbing some market share.
spk01: Got it. And then within the sales org and R&D, I guess you gave us a little bit of a picture aiming for EBITDA breakeven in 21. Obviously, if you can drive that kind of top-line growth, that's what's ultimately going to drive the valuation near an intermediate term. But as you're talking about that OPEX, Where does the incremental op-ex come, at least in the near term? Or ask differently, you know, I'm sure you're going to be sort of doing some substantial reallocations of costs. Just talk about how the cost structure is going to change over the next several quarters as you kind of affect this, you know, this strategic plan.
spk03: Sure. Dave, do you want to highlight that?
spk04: Yeah, certainly. So, Jeff, what we're planning on doing is we go to the mid market and create a high velocity, essentially SaaS offering here. It's to shift those resources in to go ahead and drive real revenue growth. Additionally, from a cloud platform perspective and just an R&D perspective, we're going to focus on making those investments very wisely and to make sure that where we direct those resources is delivering the features, functionality that get the most out of essentially not only a scalable SaaS model, but also channels and channel partner growth. And so our focus is really to get the spend directed at those things that are revenue enhancing.
spk01: Okay, and then, Dave, while I've got you, you mentioned strength in the quarter from overages. What was it in the quarter? And, yeah, maybe just start there.
spk04: Yeah, it's not a big number, Jeff. As we've talked about, it's probably in the quarter, it's less than $150,000. And what our team continues to focus on, which is consistent with what we've been doing, is to make sure that we sign up our customers on much larger and longer-term renewals. So we have two great examples of essentially customers that came into overages in the period, and we have moved. I'll give you an example of just one of them. But they were on essentially a five-terabyte plan, and we were able to go ahead and move them to a 42-terabyte plan to meet essentially their advanced needs. And that's getting them right-sized. Additionally, in that same context, we were able to go ahead and expand the duration of time that we had them under contract. And so as we encounter overages from time to time, we'll build those through. But really our account management customer growth strategy is aligned with growing the SaaS-based revenue and getting those folks converted onto bigger and longer-term contracts.
spk01: Fair enough. Last one for me then is just back to the 20-plus growth target for 21. You mentioned a number of things that were driving the visibility, one of which was the pipeline. Just talk, if you would, about the pipeline, what's in there, the magnitude out of it, coverage, changes and breakdown, some more color on pipeline would be great.
spk04: TJ, would you like to handle it, or do you want me to? Go ahead with the coverage, and I'll give some color after that. Certainly. So, Jeff, I think we had announced last go-round we're about 4.2x. We're north of that at this juncture. So I was calculating it out just before this call. It looks like about 4.5 is where we're coming in at approximately right now, and so that's where we're at. Pipeline for the most part, though, and we continue to see this trend in our business, much less on-premise, much less appliance, so that license and appliance component of the pipeline continues to swing away as we continue to go ahead and increase pipeline for cloud and cloud hybrid.
spk03: And in addition to that, Jeff, what we've been seeing is more and more inbound requests that are coming for our capabilities. We're also seeing a nice reaction to our build and price tool where people are able to go in and really figure out what's the kind of system they need, and that gives us a lot of ability to follow up with them and move quickly into a solution. And we believe that this will continue to drive more and more cloud subscription going forward. We continue to upgrade our marketing efforts as well, and I think you're going to see more coming out of that. And we've held a lot of events on really being, and being able to hold events from anywhere and being able to do this in a self-service fashion. And those are creating a number of leads from both small, medium, and large enterprises. So our goal was to go after and continue to grow large enterprise growth, but also to not miss out on the medium and smaller enterprises that could also be a part of our go-forward approach. And we've had some success with that here in the recent past as well.
spk01: Great. Thanks so much, guys. Appreciate it.
spk00: Thanks, Jeff.
spk01: Thanks, Jeff.
spk00: And our next question comes from Stephen Frankel from Colliers. You may begin.
spk02: Stephen Frankel Good afternoon again, TJ. Thanks for all the details on the plan. But let me follow up on Jeff's question of pipeline coverage. Four and a half times to get you to this year's guidance, or is that the pipeline that gets you to 20 percent revenue growth? Kind of walk us through how you bridge from where you are today to get to either double digit or 20% growth for next year?
spk04: Yeah, so the the focus and the 4.5 X is against this year's revenue target. And what we haven't done is actually communicate any sort of pipeline against 2021. I can suggest that 2021 growth plans tie into the strategic roadmap initiatives that TJ had had laid out. And so pipeline is moving in the direction of both growth and growth in SAS higher quality SAS based revenue. Additionally, we've got a strong recurring revenue base to back that up as a good launching point for for the growth. The growth next year will come through a combination of our enterprise sales efforts, as well as our SMB with essentially a bit of a topping off from our e-commerce initiatives. Steve, that's how we're looking at the 20-plus percent growth for next year.
spk02: Okay. And let's talk people-wise. To what extent do you have the right skill sets today in marketing to build the awareness and drive traffic to the self-service SMB piece? And then on the enterprise side, kind of moving away from the traditional enterprise business focusing more towards cloud and hybrid? Do you have the right skill set in that sales team? And do you have the correct number of bodies to get to your plans for 21?
spk03: Great question. And Steve, I think this is a big part of the implementation of the strategic roadmap as we go forward here. So, one, we've already started some of the low-hanging fruit and important early efforts, as I think you've seen in some of our public releases, whether it's around the build and price tool and it's around e-commerce. And the fact that we're upping our marketing game and taking some new initiatives and bringing on some additional expertise to make sure that we have the best lead gen capabilities to move very quickly with this market, and that's going to certainly drive some of that. We also are continuing to grow our key resources that are going to be a part of this mid-market pursuits. We are really turning the sales team into a full cloud SaaS-based organization with key pods that are focused on large enterprise, medium enterprise, and also taking advantage of the leads we get out of our SMB and e-commerce efforts as well. This is a transformation for us as a company to be really focused on full cloud SaaS teams and the sales model that we're doing, and that will be part of significant hiring that's coming into that as well. We're still going to come out with some more details on some of that as we move forward, but I will say we are scaling up and we will be part of a growth pattern into what we're doing with our key business development resources. We're bringing in some additional resources around our channels and our channel management today. That's going to be absolutely critical as well as we grow the channel to support what we do going forward. So there is additional headcount and there is additional resources coming in to be a part of that.
spk02: Okay, and then going back to Jeff's earlier question, do these things lead to a significant growth in overall op expense, or are there equivalent expenses that can be cut and those monies used to drive these new initiatives?
spk03: Good question. There's some of both. We are specifically looking at areas where we've had higher spend than we believe, and we're saying no to certain things to both import some operational excellence to make sure we're doing the best we can with where we're investing. We're also making sure we're focusing on features and functions that are critical to our core marketplace and not necessarily just developing features specifically. to have more features. I think that's important. We are definitely focused on those that are allowing us to scale and secure and handle the key enterprise functions that we think are important. And so we're investing more in cloud, but a lot of that is some shift from other things we were working on before. So I think some of that is going to be, you know, operational efficiencies that drive those pieces. We also have been spending less on travel and travel for sales and moving most of that into a remote environment. That has given us additional savings that are driving into what we're doing with additional sales positions, including additional business development resources. We will also look at investing into additional resources to help drive this growth as well. And so there's basically both are going to be used to achieve our goals.
spk02: Okay. And And where is ASP today, and how does that change if you're successful in attacking the mid-market?
spk04: ASP varies by marketplace. So what we've got with the e-commerce offering, it's pretty much a below $15,000 ASP, and that's served up so that individuals and small businesses and or business units looking to get started with a Kumu-like offering have got a great entry point that enables us not only to get contact information, but to nurture them through what we perceive as a long-term customer journey and a land and expand, which is what we've been successful with as a business. At the cloud or cloud hybrid, we've got a couple different offerings, but the range of offerings is generally about $35,000 with an average sale price for probably a small enterprise. it will run all the way up to probably half a million dollars if they're going cloud, cloud hybrid, um, on a per annum basis. And then if they're, if we, and we do have ASPs that, uh, also accompany our on-premise solutions as well. And those, those are much larger, 450,000 plus, depending upon the size of the size of the user base and, uh, the other pricing criteria.
spk02: Okay, great. And then, uh, My last question, I really appreciate the renewal rates and retention stats, but give us an idea of what's a normalized metric. What should we expect these numbers to look like as we get into next year?
spk04: TJ, do you want me to field that? Yeah, go ahead. Steve, where we're headed with this is trying to come down to some simple metrics that we can communicate regularly to the street. Our intention is to go ahead and put this on our investor relations website so that we make this very public. What we'll focus on is building off of a solid base. So at the beginning, it's going to be about customer retention and growth. We're looking to move retention north of 95%. This year, we are looking to go ahead and increase our GRR and our NRR percentages. We'll come out more publicly with those as we get to essentially next year's guidance. We're going to go ahead and significantly increase ARR. And then additionally, we will talk very specifically about what we will be doing with the SMB segment And because it's such a pivotal piece of our growth strategy next year as we allocate resource to it and look to achieve success with market share. And then we'll talk to you a little bit more about channels and what we're going to be doing there because TJ highlighted that as a significant initiative as well.
spk02: Okay, great. I appreciate the transparency. Thank you. You're welcome. Thanks to you.
spk00: Thank you. And our next question. We'll come from the line of Kyle Kruger from Apollo Capital. You may begin.
spk05: Thank you. Good evening. And thank you for the extra detail and forward look into next year. But I have a couple simple questions. In just doing the math off of $29 million in revenues this year and your expected minimum growth rate of $20 million, I get to almost $35 million in revenues. But what – What is the ARR component of that, and what is the expected growth rate in ARR that's contemplated by that number?
spk04: Yeah, so we had great ARR momentum in the quarter, 18%. I mean, I would love to keep that trajectory because essentially building that ARR component and then when it's occasionally as we've got existing on-premise customers and whatnot that expand and as we go ahead and achieve success with the SMB marketplace, You know, we're not providing guidance, to be absolutely clear here, Kyle. We're essentially putting out a trajectory that says we are planning to grow north of 14.5% this year. We're essentially providing some momentum to say, look, this is an early strategic roadmap, but we've got a lot of confidence in it and we're gonna be north of 20% next year based on our current thoughts as it relates to executing that plan. That said, we will provide guidance when we come out with our next earnings release and earnings call so that we can go ahead and put that down in numbers, and we'll then start breaking out for everybody essentially what's going to be within ARR and what's going to be outside and around ARR.
spk05: Okay. Thank you. And of that, the DELTA, the revenue delta next year, which is about $6 million, how much of that is based on the expectation of revenue development in the SMB space?
spk04: Yeah, I mean, again, we're not getting down to the level of specificity right now, Kyle. I'd suggest that we've got a significant endeavor and an initiative here, and it's a reasonably healthy number. But that said, particularly with TJ and the team, we've all got experience building this out. And so as we go ahead and work towards it, we'll provide you with more specificity. We talked about one of the metrics. It was Steve's question that he had just asked as it relates to what metrics we'll be putting out. We will be putting out essentially the revenue targets for SMB, and we will be reporting against that each and every quarter for you.
spk05: Yeah, okay. The reason I ask that, obviously, is because it's a business that, you know, substantively doesn't exist right now, and there's a different risk profile associated with the development of those revenues. That's why I asked the question.
spk03: Yeah, Kyle, let me jump in just on a little bit on that. You know, the reality is we feel very strongly about how our large enterprise customers are also going to continue to grow, and that has been our sweet spot, and we plan to continue to see that to grow, and so that gives us confidence. At the same point, we will be adding mid-market and smaller enterprises as well, but clearly you're going to see, you know, we believe that the growth is focused in the large enterprise with those other ones continuing to add to it. So, you know, that should give a bit of color to your question.
spk05: Yeah, okay. Thank you very much, guys.
spk04: Yeah, no problem. Kyle, just one more clarifier which might help you. Some of our confidence from SMB comes from the fact that we do, although it's not a target focus, opportunistically we've been serving SMB. And some of the wins that we have talked about over the past several quarters involve success with SMB folks. So we're not actually starting at a zero base. We've got a fair amount of experience here and have a degree of confidence in the platform and our ability to go ahead and build a sales organization to go after it. So I don't want anybody to leave the call thinking that we haven't done SMB at all before. We've actually been announcing deals throughout the various preceding quarters that I would hope that you would get a little bit of credit for. Yeah.
spk05: Yeah. Thank you. Thank you very much. Understood.
spk00: Thank you. And as a reminder, that's star 1 for questions, star 1. And I'm not showing any further questions at this time. I'd like to turn the call back over to TJ for any further or closing remarks.
spk03: Thank you very much. I appreciate it, Victor. Thank you, everyone, for joining our call this afternoon. We really appreciate your continued support as we now go off and execute our growth plan and scale Kumu to the next level. I look forward to speaking to you all again soon and appreciate all the interest today. Thank you.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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