Qumu Corporation

Welcome to Kumu's third quarter 2021 conference call. My name is Kevin, and I'll be your operator this afternoon. Joining us is Kumu's president and CEO, T.J. Kennedy, CEO, Rose Bentley, and Matt Glover from Gateway Investor Relations. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star 0. I will now turn the call over to Matt Glover. Sir, you may begin.

Thanks, Operator, and good afternoon, everyone. After the market closed today, Kumu issued a press release announcing its financial results for the third quarter ended September 30, 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 company's go-to-market strategy, and efforts designed to increase the company's traction and penetration. 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 its Form 10-K 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 measure, including a reconciliation of this measure to its comparable GAAP measure. Non-GAAP financial measures are not intended to be considered an isolation from, a substitute for, or superior to GAAP results. The company encourages you to consider all measures when analyzing its financial 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 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 ARR 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 ARR 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 on our way to creating an 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 than where we are today. In 2020, SaaS revenue as a percentage of recurring revenue That was SAS was 41%. In Q3, SAS revenue as a percentage of recurring revenue was 52%. And we expect SAS revenue to be above 50% of recurring revenue for the full year. Q2 2020, SAS ARR was 9.7 million, which we grew to 11 million in Q3 of 2020. And we have steadily grown our SAS ARR to 13.1 million by the end of Q3 2021. Our focus is to successfully transform Kumu into a SaaS-first company that drives the future of work with enterprise video and continue to drive SaaS ARR growth. As we continue to execute on our strategic plan, we will be laser focused on our customers driving more value in the cloud for them while growing our SaaS ARR. 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 SAS metrics, Subscription ARR increased 19% in Q3 to 13.1 million from 11.0 million in Q3 last year. The 19% growth was primarily driven by cloud conversions and cloud expansion. At quarter end, our SaaS gross retention rate, or GRR, was 94% compared to 91% at the end of Q3 last year. Our SaaS net retention rate, or NRR, was approximately 119%, consistent with the end of Q3 last year. And finally, our SAS 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 gross margin increase was primarily due to a larger mix of higher margin cloud subscription revenues. Looking at our costs, as I noted earlier, 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 our 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 $0.24 loss per basic share and $0.30 loss per diluted share for Q2 of 2021 and a net loss of $1.9 million or $0.14 loss per basic and diluted share in Q3 of 2021. The year-over-year increase in loss per diluted shares was expected as we transitioned the company to the cloud and recurring revenue SaaS subscription business. Adjusted EBITDA loss and non-GAAP measure was negative 3.5 million compared to a loss of 4.5 million in the prior quarter and a loss of 839,000 in Q3 of last year. We ended the quarter with 18.2 million in cash and no borrowings on a revolving credit facility. We believe we have sufficient cash and capital resources to execute on our strategic plan to a cloud-first and SaaS subscription business. Now that I've covered the highlights and the financial results, I'll turn it over to our COO, Rose Bentley, to discuss the ongoing implementation of our strategic plan, and the traction we have on key initiatives. Rose?