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spk04: Good day and welcome to Kumu's first quarter 2022 conference call. My name is Eli and I will be your operator this afternoon. Joining us is Kumu's president and CEO, Rosa Bentley, CFO Tom Kruger, and Matt Glover from Gateway Investor Relations. At this time, all participant lines 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 will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to Matt Glover. Sir, you may begin.
spk02: Thanks, Operator, 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, 2022. a copy of which is available on the investor relations section of the company's website. During today's call, a manager 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 Kumu's SEC filings, specifically its Form 10Q, 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 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'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 Kumu's website. Now, I'd like to turn the call over to Kumu's president and CEO, Rose Bentley. Rose?
spk00: Thank you, Matt, and good afternoon, everyone, and thank you for joining us today. It's great to be here with you as Kumu's new president and CEO. As many of you know, I joined Kumu as chief operations officer in March of 2021. Since joining the company, I have played a key role in the development and execution of Kumu's strategic roadmap, which emphasizes growing our cloud business, leveraging innovative technology, and scaling our SaaS revenue base. As COO, I spearheaded Kumu's partner-led sales motions and customer experience efforts, which continue to be a critical element in our ability to secure new logos, deepen customer relationships, and drive higher retention and cloud conversions. My appointment will ensure absolute continuity in leadership and execution of our strategy and is a direct reflection of the succession plan we have had in place for several months. For those of you that I haven't had the pleasure of meeting, prior to Kumu, I held leadership roles at several SAS technology companies. Most recently, I led operations and strategy for Teradata, a $1.8 billion revenue analytics company, where I played an important part of the company's successful transition from a perpetual licensed business model to a subscription-based, cloud-first revenue model. Teradata's transition was in many ways similar to the transformation currently underway here at Kumu and has given me a playbook to reference along this journey. Looking ahead, I appreciate the opportunity to lead Kumu into the next stage of development. I also look forward to building stronger relationships with our existing partners and customers, as well as making new connections with our investors and other stakeholders over the coming months. Switching gears to our most recent performance, During the first quarter, we landed several new wins and customer expansions, both of which support our view that Kuma's transformation is well underway. Our partner-led sales motions are working, demonstrated by the fact that 75% of our wins in Q1 were through channel partners, including Collective, BT, and Socialize. The traction we realized also demonstrates our execution against strategy around customers, product adoption, innovation, and partners. Our performance is now also translating into growing SaaS metrics and KPIs. As we've mentioned previously, our team is committed to driving cloud business and scaling our SaaS revenue base. We expect this trend to continue in 2022 and beyond. Highlighting our ongoing success is the 15% year-over-year SaaS revenue growth we generated in the first quarter, bringing our total SaaS revenue as a percentage of total revenue to 54%. up from 46 in the prior quarter and 40 percent in Q1 of last year. On top of this, our SAS revenue as a percentage of reoccurring revenue continues to grow, up to 60 percent in Q1 compared to 56 percent in the prior quarter and 46 percent in Q1 of last year. Additionally, our SAS annual reoccurring revenue, or ARR, increased 10 percent year over year to a record 13 million. Our encouraging SAS and reoccurring revenue growth is supported by our solid balance sheet, including 15.5 million of cash, a level that provides significant runway to execute our strategy. In addition to diligently managing our cash, the leadership team and I are continually looking for areas to optimize costs and drive efficiency. I'll now turn it over to our CFO, Tom, to provide more detail on our Q1 financial performance. Tom?
spk05: 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 or included in our earnings release this afternoon. The metrics that we use to measure the success of our SaaS transformation continue to move in the right direction. Now let's look at them. As Rose mentioned, during Q1, subscription ARR increased 10% to $13.0 million. from $11.8 million in Q1 2021 and increased sequentially from $12.8 million in Q4 2021. Our SAS KPIs remain strong with gross retention rate, or GRR, at 88% at quarter end and net retention rate, or MRR, at 107% at quarter end. Moving on to operating expenses and adjusted EBITDA, a non-GAAP measure. Our transformation is also focused on rationalizing our cost structure and realizing efficiencies to reduce cash burn. Our total operating expenses in the first quarter of 2022 were $8.2 million, down 3% sequentially and 10% year over year. Going forward, we will reduce operating expenses as needed to align resources with CUMU's strategic plan for the balance of 2022. Adjusted EBITDA, a non-GAAP measure, was a loss of $4.1 million in Q1 2022 compared to a loss of $3.1 million in Q4 2021. Net loss was $4.6 million for Q1 2022 compared to a net loss of $3.8 million in Q4 of 2021. A reconciliation of adjusted EBITDA a non-GAAP measure, to net loss, a GAAP measure, is included in earnings releases for the respective periods. Now for the balance sheet. At the end of Q1 2022, our cash position was as expected and tracking to plan at $15.5 million. We continue to tightly manage cash and have seen an improvement to cash firm after initiating our cost optimization program in Q3 last year. We will continue to monitor expenses and leverage our available credit facility to align expenditures with bookings and collections on our path to becoming cash flow positive. As Rose mentioned, we believe that our cash position and available liquidity resources provide sufficient runway to execute our SAS growth transformation strategy and get to cash flow profitability. That concludes my prepared remarks. I'll turn it back over to Rose to discuss our strategy key partnerships, and our outlook. Rose?
spk00: Thanks, Tom. I'm excited to lead Kumo at such an important moment for our company and for the industry. Digital transformation is driving the convergence of networking security and viewer experience as technology teams realize and recognize the challenges of delivering video in a complex enterprise environment. Distributed organizations globally are looking for a reliable end-to-end video solution to solve these challenges. With this approach, enterprises can also help reduce operational costs by moving to a single cloud-delivered solution. The need for an enterprise video platform that can provide the security, performance, features, and ease of administration has never been greater. The progress we've been making with partners and strategic alliances continues to gain momentum, demonstrated by the new customer and expansion sales to large enterprises we secured in the first quarter. Kumu's recent wins span a variety of use cases, serviced by cloud and hybrid solutions. A few of our notable new customers include a prominent global auto manufacturer and mobility provider, a leading multinational energy company, and top global banking and financial company. These great rings are the result of our dedication to the strategy and collaboration with our partners. Perhaps our most important partnership we are currently working on is with AT&T, where we've collaborated to deliver a cloud-based unified video experience for enterprises with video content management, streaming, enterprise signage, and IPTV. This partnership is a major win for us as it was a highly competitive selection process where Kumu's technology and track record edged out much larger than more well-known brands. The innovative solution, which is available to AT&T customers today, brings video content management and streaming, enterprise signage and IPTV, all enhanced by AT&T's fiber and 5G networks and the Kumu video engagement platform together in one solution. The inclusion of management services helps to relieve the burden of deployment and day-to-day support, with AT&T video experts acting as the extension to IT and webcasting team. The feedback and response from AT&T's customers are encouraging. We have a strong and healthy pipeline and expect to close our first deal together in Q2. In addition to AT&T, we formed a joint reseller partnership with LiveView, a leader in the live video streaming and remote production solution. LiveView excels at delivering live HD and 4K video anytime, anywhere over the public Internet. We have already successfully collaborated with LiveView on high-stakes live events for major auto manufacturers and one of the country's largest healthcare companies. The expanded partnership enables our respective enterprise clients to produce, deliver, store, and distribute broadcast quality video, including live video from corporate events. It also extends our ability to support enterprise customers wanting to produce and stream live events reliably and securely over the public Internet. Live view customers who encourage Kumu will gain access to the storage, content management, distribution, and analytics capabilities of Kumu's video engagement platform. We are really excited about this expanded relationship and expect to land several new wins together this year. We continue to see momentum with large enterprises deploying our video engagement platform. During Q1, we expanded the use of our platform in key accounts in the healthcare and manufacturing industries, including a transition from on-prem to cloud and user expansion with one of the largest automakers in the US. Additionally, we signed new and expansion agreements for asynchronous video deployments, which added nearly a million new users to the platform in Q1. Leading organizations are recognizing that today's environment requires reliable, secure, and scalable video communications to help them accelerate their digital transformation efforts. It's rewarding to be part of their video strategy in this new era of hybrid work. Overall, our partner ecosystem allows us to deliver more value for our current customers by providing them with the end-to-end solution they need to deliver against their video needs. A partner-led strategy helps our customers and keeps our customers at the heart of all that we do and every decision that we make and on a path to leverage the best in-breed video solutions at scale. Put together, our sales momentum not only reflects the success of our sales motions and innovative technology, but also our industry-leading customer support, which continues to differentiate us in the markets. Kuma recently won its fourth consecutive Stevie Award for customer service, a recognition that notable technology companies and brands like Google, Optum Health, Zappos.com, Wyndham Resorts, and Affleck have won previously. We are proud of this award as it is a direct reflection on our team's unwavering commitment to the customer and providing the best service possible day in and day out. As we continue to transform our business, we remain committed to generate robust, fast revenue growth through new customer and expansion bookings sourced through the channel. Looking ahead, the progress we're making with partners and strategic alliances is gaining traction. We've entered the second quarter with a robust pipeline that we look to capitalize on throughout the year. Our plan is supported by a solid cash position and available resources that provide sufficient runway to execute our growth strategy. Going forward, we continue to expect our SAF reoccurring revenue as a percentage of our total reoccurring revenue to be at least 65% by the end of 2022 and 75% by the end of 2023. And we continue to expect the crossover to cash flow break even during 2023. The leadership team and I remain confident that Kumu will emerge as a subscription-driven growth company operating at scale benefiting from high margin reoccurring revenues, sustainable and growing cash flow and adjusted EBITDA and net income profitably. We will now take your questions. Eli, please provide the appropriate instructions. Eli?
spk04: Thank you. Ladies and gentlemen, the Q&A is now open. Once again, to ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. And our first question is from Mike Lattimore from Northland Capital. Your question, please.
spk03: Thank you very much. Hi, Rose and Tom. Hey there, Mike. Hello. So the AT&T wins, very interesting. How is AT&T kind of positioning it, you know, within its broader enterprise? Is there a specific sales force selling it? You know, what type of customers are they targeting? Just kind of curious how they're going to leverage you guys here.
spk00: Sure, sure. We were just together with AT&T at NAB, and we are positioning this in their global video solutions portfolio. So you'll see a lot of sports media entertainment in there with their expectation that the IPTV and the streaming combination with the content management will deliver that differentiated solution through that portfolio.
spk03: Got it. And they have sort of enterprise sales people up selling it, or how are they selling it?
spk00: Correct. Yeah, correct. Yes, they are leveraging it through their enterprise. We're focused on the enablement. building pipeline. And we've been doing this now for a little while with them. So the good news is we have the opportunity now to start capitalizing on the pipeline we've been building.
spk03: Yeah. Great. And obviously the channel itself, big part of bookings again here. I mean, how are you thinking about any further refinements on, you know, channel versus inside sales or, you know, direct sales kind of efforts? Is there a sort of on track with strategy now? Are there any kind of changes or refinements you want to have going forward here?
spk00: Yeah, Mike, we are on track with the current strategy. As you know, we shifted to the partner-led strategy a few months ago, and we are committed to enabling our partners, you know, building the repeatable sales motion with them and continuing to find opportunities to win with them in the market. So no shifts in strategy now. We continue to find the importance in our direct sales motion, as well as our channel-led motion and respecting that a lot of the current opportunities that we have in our pipe and our focus is around the channel.
spk03: And then just last one, the sequential change in revenue, is that largely related to maintenance?
spk05: Yes, that's the significant decrease. It's just maintenance and it's just the headwinds that we've talked about that we're seeing with the business just shifting away from on-prem to on-prem to cloud. So it's not unexpected. It's very much exactly what we expected actually coming into the year. Great.
spk03: And then I guess just last one on just kind of the broader market. You sound very positive on new wins and new bookings and interest levels high. I guess we had sort of maybe a little bit of a COVID tailwind. Now we're kind of coming out of COVID hybrid work environment. But it sounds like the interest level in the category in your technology is very high and, if not improving, that is my sense. But maybe you can add to that.
spk00: Yes, certainly, Mike. You're right. We're seeing the trends where they're still all over the map. But you're right, leading towards hybrid work and hybrid events. Because at the end of the day, we are not the same people in 2020 coming into 2022. And the higher expectation of employees in this hybrid environment is higher than it's ever been. And if you look at just our usage on the platform, we've seen a 54% increase in total platform users year on year, which means that a lot of customers are just really using more, right? And we've seen like a two X increase in just async and video views over the last three years. So the use cases are being validated by that. And I think also the adoption of video is being validated by how we're seeing our customers, you know, increase their usage of even what they're currently doing.
spk03: Hmm. So you said that the users are up 54% year-over-year, is that what you said? Correct. Okay. Great. All right. Thanks very much. Good luck this year.
spk00: Yeah. Thank you, Mike.
spk04: Thank you. Thank you. All right. Our next line is from Jeff Van Reeve from Craig Hallam.
spk01: Your line is open. Great. Thanks. Thanks for taking my questions. Rose, on the SAS side, talk about the gross retention and maybe your expectations there. That's my first. And then just from a competitive landscape question, sort of when you get to the final phase, what is the primary differentiator? Why do you win if you win on the SAS side right now?
spk00: Yes, certainly, Jeff. Thanks for the questions. I'm going to focus on your first one, which is why we're winning. I spoke to it a little bit in my prepared remarks, which is it's really around the customer service and support level that we provide. Our customers know we will go the extra mile. And when we are down to that last leg, it really comes down to the reliability. And they know that we are the kind of partner for them that will ensure their success. That is our number one reason for winning at this point. The reliability comes from the team. of support, customer success, but also of just the product itself. When I look at gross retention, which is your first part of your question, we expect gross retention to be a critical foundation for our growth in bookings throughout the year. And gross retention for us specifically, we look at it in two ways. You've got the gross retention of the VCC business as well as the cloud business. We are seeing extremely high best-in-class renewal and retention rates specifically on the SaaS and cloud business. And, you know, with our strategic plan and what we expect to see from the BCC business, we are seeing, you know, at least a 70% and above retaining of that business because customers are choosing, as we know, to stay on the current version or upgrade or potentially migrate to the cloud. And those cloud conversions are what's really leading to a lot of our SaaS growth as well. And then I'll defer to Tom, too, if there's anything else you'd like to add there, Tom.
spk05: I would just say that the SAS GRR, of course, retention that we saw in Q1 was in line with what we expected, and we expect to be at 90% or above for the year. So I expect to see that a little bit better and continue through the year.
spk01: Okay, fair enough. Last one, then, I guess on a lot of new partnerships, a lot of things that you're working on. You talked about the pipeline. You've got the offsets, some of the prem folks going away. Deferreds are coming down. You mentioned some new signings, but I guess the question would be, when do you think you can really move the needle with respect to revenue from or deferred from these new partnerships? I mean, what's the timeline to impact here?
spk00: Yeah, I'll jump into the partnership specifically and I'll send over to Tom. I mean, for us, we are tracking to plan right now. And considering where we're at in our strategy, right, the new business wins, we don't necessarily get the credit for them until we have either converted a customer to the cloud or we've seen the decline in the on-prem business continue to stabilize. So we expect that intersection point of our new bookings plan, delivering against our retention plan, as well as the partners really start to take hold in Q3 and Q4 with our expectation coming into the year that we'll be in a much better position around that break-even point in cash. Tom, is there anything you'd like to add?
spk05: No, I think just that, you know, every quarter we're seeing more traction and improvement in our ability to attract new customers, which is just going to help us, you know, really grow that SaaS business. So what we saw here in the first quarter, you know, very much tracks with our plan.
spk01: Okay, great. Thanks for taking my questions. Best of luck.
spk00: Thank you, Chuck.
spk04: Thank you. Thank you. At this time, this concludes the company's question and answer session. If your question was not taken, please contact Kumu's IR team at kumu at gatewayir.com. I would now like to turn the call back over to Ms. Bentley for her closing remarks.
spk00: Thank you, Eli, and thank you, everyone, for joining our call this afternoon. Kumu is executing against a tremendous opportunity, and I look forward to working with the team to ensure Kumu reaches its full potential. I look forward to speaking to everyone again soon. Have a great day.
spk04: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation.
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