Qumu Corporation

Q's first quarter 2021 conference call. My name is Ashley and I will be your operator this afternoon. Joining us is Q's president and CEO, T.J. Kennedy, CFO, Dave Risto, COO, Rose Bantley, and Matt Glover from Gateway Investor Relations. At this time, all participants are in a 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 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 Clover. Sir, you may begin.

Thanks, Ashley, and good afternoon, everyone. After the market closed today, Kumu issued a press release announcing its financial results for the first quarter ended March 31, 2021, 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 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 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 Kumu's SEC filings, specifically Form 10-K and financial results press release, for a more detailed description of the 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 may find additional disclosures regarding this non-GAAP 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, a 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 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, T.J. Kennedy. T.J.?

Thank you, Matt, and good afternoon, everyone. It's a pleasure to be here with you today. Also on the call with me is our CFO, Dave Risto, and our new COO, Rose Bentley. Rose joined us last month to lead our global operations and manage the day-to-day execution of our growth strategy. Before Kumu, she led operations and go-to-market strategy for a 1.8 billion revenue analytics company. Before that, Rose led global sales and customer success at a leading customer experience management company, which was acquired in 2019. Rose's experience and leadership will be critical as we continue to win the hearts and minds of customers through innovative solutions that will shape the future of work for the next generation. For today's call, I will kick off on the worldwide shift to hybrid and asynchronous work, and then we'll cover a high-level overview of our Q1 results and operational progress within the context of this strategic roadmap. Then I will turn it over to Dave, who will walk you through our detailed financial performance for Q1 and outlook for 2021. Rose will then discuss select key operational initiatives. Afterwards, I will speak to our growth initiatives and the next phase of our strategic roadmap. The world changed in 2020. We are not going back to the way work was before the pandemic. Last year, enterprises replaced conference room meetings with video teleconference platforms as the first response to remote work. The world proved that meetings could be held remotely, and attendees no longer had to be in the same physical space to be effective. This is just the beginning of the transformation of work. 2021 will mark the real change to work. Work will now include asynchronous work and collaboration that is unencumbered by location and time zone. The future of Kumu Video at Work is about more than just large-scale synchronous live video, but also asynchronous video and what we at Kumu refer to as video on demand. Asynchronous video opens up an entirely new dimension of asynchronous work that is more effective and efficient. Asynchronous and synchronous work require platforms like Kumu that offer both options that are seamlessly integrated together, as well as enterprise security and enterprise video content management. The market to address this new way of work is just starting to grow. Adoption of new technologies by business is growing in 2021. I feel that we are just at the beginning of the significant change in the way enterprises around the world will think about and conduct work. At Kumu, we are building the team to handle the significant shift in how technology will enable businesses to thrive and to facilitate Kumu growing with them as they go on their journey to work from wherever, whenever. We have updated our work from wherever approach to swap in whenever for forever as it is a foregone conclusion that work will not go back to exactly what we had before the pandemic. Hybrid work and permanent work from wherever, whenever is the change that is already underway. Whenever truly highlights the fact that more and more work will be asynchronous. In Q1 2021, we completed the second phase of our two-year strategic roadmap. Phase two was focused on implementing the key restructure required to strengthen Kumu's position as a leader in cloud-first enterprise video, transitioning us into a SaaS-first company, as well as establishing the infrastructure for accelerated growth. As some of you know, Phase 1, which commenced following my appointment last July, involved a comprehensive evaluation of Kumu's business, as well as a detailed assessment of our market positioning and industry dynamics, resulting in Kumu's strategic roadmap. At a high level, the evaluation confirms several things we believe to be important, including Kumu's competitive strengths and advantages, which are enabling hyper-distributed engagement, delivering the right content at any time, and leveraging the power of enterprise video to drive measurable business impact. We took these findings and developed a go-forward two-year strategic roadmap. We initiated phase two of our plan in late Q4 2020 and concluded it at the end of Q1 2021. Phase two involves strengthening the leadership team as well as bolstering our customer facing teams. We have successfully restructured our sales and marketing teams and implemented a new customer success team. We have now brought on board 27 new sales and marketing personnel above our previous level of staffing, including an additional seven customer success team members. In our hiring, we specifically targeted talent that showed the same excitement we feel about the future of video in the enterprise, shared our absolute commitment to the customer, and demonstrated a drive to excel in their roles to generate the financial results for Kumu that should be a natural extension of the market opportunity and Kumu's competitive strengths and advantages. With these changes in place, Kumu is in a solid position to drive scale and sustainable growth into the future. We plan to further expand our revenue-generating teams to meet market demand and continue to drive our obsession with our customer every step of the way. During this process, we had four key achievements I would like to highlight. First, we implemented a customer-first and SaaS-first approach across both our organization and business model, and we refined our go-to-market strategy to better align with our strengths and industry growth opportunities. We leveraged our work from wherever, whenever approach to strengthen our team by expanding our universe of available applicants and offering greater certainty to where our work would occur for employees and provide flexibility to our team. This enabled us to bolster our go-to-market teams across pipeline development, direct sales, sales channels, customer success, and geographic regions. Third, we solidified our balance sheet by adding $23.1 million in cash through an equity raise in January And fourth, we established ESG and diversity, equity, and inclusion initiatives and corporate social responsibility mandates that have been well-received by our stakeholders. Clearly, we have accomplished a lot in a relatively short period of time, and I'm incredibly proud of our organization's unwavering commitment and dedication to driving demonstrable results and delivering on the community vision. Our focus during the first quarter of this year was on building the infrastructure and aggregating the resources and talent to take Kumu to the next level of growth and performance. This included hiring and onboarding the right people, arming them with the right tools to be successful, and then leveraging them to start to cultivate and drive new business. While our operational execution against our strategic roadmap in Q1 was and continues to be solid in alignment with the roadmap, we have encountered temporary challenges that can be expected with this kind of accelerated change from on-premise to the cloud. which caused our top line to come in lower than desired. We have always anticipated that the first half of 2021 was going to be the build part of the plan, and that is exactly the case. Q1 was an important and necessary transitionary period for our company, which continues as we grow and add resources, especially for our sales and marketing teams. Our collective focus during the quarter was first on onboarding new sales professionals, training the customer facing teams, and implementing enhanced sales strategies. And second, on reviewing our existing historical pipeline, making necessary adjustments in order to prepare for the SaaS business we are building going forward. This focus was critical to executing on our roadmap, but not unexpectedly created challenges in securing new logos so early in the transformative process. However, despite these anticipated challenges, we are seeing improvements in the critical indicators to our SaaS business, providing greater visibility. From a pure sales perspective, we closed on new SaaS sales that are aligned with our strategy, including adding new logos, and perhaps most notably, closing on our large cloud conversion of an international telecommunications giant in Q1. To put it in relative percentage terms, we delivered 21% year-over-year growth in our SaaS subscription annual recurring revenue, reflecting our continued success transitioning to a more predictable SaaS-based business model, which is building a solid foundation for predictable growth in the years ahead. The 21% year-over-year increase in ARR is the result of effectively converting on-prem customers to the Kumu Cloud and better customer alignment, resulting in increased retention from our customer success efforts. Our focus on driving cloud conversions continue to produce promising results. We also continue to achieve solid SaaS customer retention metrics, including 104% rolling 12-month SaaS renewal rate as of quarter end. In terms of customer retention and expansion, our SaaS customer retention metrics in Q1 were solid with year-over-year increases in several metrics, including a 5% increase in gross renewal rate, a 9% increase in net renewal rate, a 14% increase in dollar value retention, as well as a 6.6% increase in overall gross margin, and deferred revenue was up 30% in Q1 of 2021 over Q1 of 2020. Before I dive deeper into our execution of strategy, growth initiatives, and outlook, I'll turn it over to Dave to walk you through our key financial results for the first quarter and outlook for 2021. Dave?