NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Nature of Business and Basis of Presentation
Qumu Corporation ("Qumu" or the "Company") provides the tools to create, manage, secure, distribute and measure the success of live and on-demand video for enterprises. The Qumu platform enables global organizations to drive employee engagement, increase access to video, and modernize the future workplace by providing a more efficient and effective way to share knowledge. Qumu’s customers, which include some of the world’s largest organizations, leverage the Qumu platform for a variety of cloud, on-premise and hybrid deployments. Use cases include, but are not limited to, CEO and executive town halls, self-service webcasting, sales enablement, training, employee onboarding, internal communications, product releases and training, regulatory compliance and customer engagement. The Company and its channel partners market Qumu’s products to customers primarily in North America, Europe and Asia.
The Company views its operations and manages its business as one segment and one reporting unit. Factors used to identify the Company’s single operating segment and reporting unit include the financial information available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and assess performance. The Company markets its products and services through regional sales representatives and independent distributors in the United States and international markets.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in a complete set of financial statements have been condensed or omitted. However, in the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations and cash flows of the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2021.
Liquidity and Going Concern Considerations
The Company's principal source of liquidity consists of cash and cash equivalents and potential availability under its revolving line of credit with Silicon Valley Bank. As disclosed in the Company's consolidated financial statements for the year ended December 31, 2021, management concluded that the Company's history of losses and its cash resources available to execute its business plan over the next twelve months raised substantial doubt about the Company's ability to continue as a going concern. While management continues to execute the plans noted below, the execution of those plans has not yielded sufficient results for management to conclude that substantial doubt has been alleviated.
Management’s plans to address the doubt regarding the Company’s ability to continue as a going concern include positioning the targeted channel-led strategy for success through efforts to expand the number of high quality channel partners, educating channel partners on the Company’s platform, tools and differentiated features, and providing performance-based incentives to channel partners to accelerate customer deals, as well as continuous assessment of the sales pipeline to forecast SaaS revenue growth driven by new customer and expansion bookings sourced through the channel. Additionally, management will actively monitor eligible accounts for the purposes of the SVB Agreement borrowing base calculation and monitor doubtful accounts and write-offs of accounts receivable, which have historically been minimal. To the extent that increasing traction in the channel-led strategy is not realized, management would continue to manage its cost optimization program to further align expenditures with the timing and amount of cash receipts from new sales and renewals of existing sales contracts. These cost optimization measures may include reductions in the Company's personnel, reduced utilization of contractors, and decreases in other discretionary spend.
The Company may also increase its cash resources by drawing on the SVB line of credit to the extent of any availability. To the extent the Company requires additional capital, it may seek capital by refinancing its existing line of credit or from offering of the Company's equity securities or both. If the Company experiences a significant shortfall in performance as compared to plan and also is unable to secure additional capital in a sufficient amount or on acceptable terms, management may be required to implement more significant cost reduction and other cash-focused measures to manage liquidity and the Company may have to significantly delay, scale back, or cease operations, in part or in full.
These condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty. If the Company cannot continue as a going concern, adjustments to the carrying values and classification of its assets and liabilities and the reported amounts of income and expenses could be required and could be material.
Recently Adopted Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This update amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company adopted this standard effective January 1, 2022. The adoption of this standard did not materially impact the Company's condensed consolidated financial statements and related disclosures.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The objective of ASU 2021-10 is to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements. ASU 2021-10 is effective for all entities for annual periods beginning after December 15, 2021. The Company adopted this standard effective January 1, 2022. The adoption of this standard did not materially impact the Company's financial statements disclosures.
(2) Intangible Assets and Goodwill
Intangible Assets
The Company’s amortizable intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Customer Relationships | | Trademarks / Trade Names | | Total |
Original cost | $ | 4,872 | | | $ | 2,121 | | | $ | 6,993 | |
Accumulated amortization | (4,427) | | | (1,343) | | | (5,770) | |
| | | | | |
Intangibles assets, net | $ | 445 | | | $ | 778 | | | $ | 1,223 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Customer Relationships | | Trademarks / Trade Names | | Total |
Original cost | $ | 4,927 | | | $ | 2,121 | | | $ | 7,048 | |
Accumulated amortization | (4,352) | | | (1,308) | | | (5,660) | |
| | | | | |
Intangibles assets, net | $ | 575 | | | $ | 813 | | | $ | 1,388 | |
Balances as of December 31, 2021 exclude intangible assets fully amortized as of that date.
Changes to the carrying amount of net amortizable intangible assets consisted of the following (in thousands):
| | | | | |
| Three Months Ended March 31, 2022 |
Balance, beginning of period | $ | 1,388 | |
| |
Amortization expense | (156) | |
Currency translation | (9) | |
Balance, end of period | $ | 1,223 | |
Amortization expense of intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
Amortization expense associated with the developed technology included in cost of revenues | | | | | $ | — | | | $ | 27 | |
Amortization expense associated with other acquired intangible assets included in operating expenses | | | | | 156 | | | 162 | |
Total amortization expense | | | | | $ | 156 | | | $ | 189 | |
Goodwill
The goodwill balance of $7.2 million at March 31, 2022 reflects the impact of foreign currency exchange rate fluctuations since the acquisition date.
(3) Commitments and Contingencies
Leases
The Company is obligated under finance leases covering certain IT equipment that expire at various dates over the next three years. The Company also has non-cancellable operating leases, primarily for office space that was surrendered, that expire at various dates over the next 10 months.
The components of lease cost were as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
Operating lease cost | | | | | $ | 50 | | | $ | 45 | |
Finance lease cost: | | | | | | | |
Amortization of right of use assets | | | | | 26 | | | 29 | |
Interest on lease liabilities | | | | | 17 | | | 2 | |
Total finance cost | | | | | 43 | | | 31 | |
Total lease cost | | | | | $ | 93 | | | $ | 76 | |
Future payments used in the measurement of lease liabilities on the condensed consolidated balance sheet as of March 31, 2022 are as follows (in thousands):
| | | | | | | | | | | |
| Operating leases | | Finance leases |
Remainder of 2022 | $ | 428 | | | $ | 43 | |
2023 | 21 | | | 58 | |
2024 | — | | | 58 | |
2025 | — | | | 4 | |
2026 | — | | | — | |
| | | |
Total undiscounted lease payments | 449 | | | 163 | |
Less amount representing interest | (14) | | | (12) | |
Present value of lease liabilities | $ | 435 | | | $ | 151 | |
Wells Fargo Credit Facility
On January 15, 2021, the Company entered into a Loan and Security Agreement (the “Wells Fargo line of credit”) with Wells Fargo Bank, National Association providing for a revolving line of credit. Pursuant to the Wells Fargo line of credit, the Company granted a security interest in substantially all of its properties, right and assets (including certain equity interest of the Company’s subsidiaries). As of March 31, 2022, the Company maintained an outstanding principal balance on the revolving line of $5.0 million and was in compliance with its covenants. On April 12, 2022, the Company repaid the outstanding balance on the revolving line and terminated its Loan and Security Agreement with Wells Fargo.
Silicon Valley Bank Credit Facility
On April 15, 2022, the Company entered into a Loan and Security Agreement (the “SVB Agreement”) with Silicon Valley Bank providing for a $7.5 million revolving line of credit. The maximum availability for borrowing under the SVB Agreement is the lesser of $7.5 million or the sum of a defined borrowing base of 85% of eligible accounts receivable plus a non-formula amount of $2.5 million. The non-formula amount will be eliminated from availability under the line of credit at the earlier of April 30, 2023 or the date on which the Company's net cash, as defined, is less than $5.0 million. The maturity of the SVB Agreement is April 15, 2024. No amounts were outstanding under the SVB Agreement as of April 15, 2022 or subsequently through the date of filing this Form 10-Q.
Any borrowings under the SVB Agreement bear interest, based on an interest rate that is dependent upon whether Net Cash is above or below $5.0 million. Net Cash is defined as (a) the Company's cash maintained with Silicon Valley Bank less (b) the outstanding line of credit balance. If Net Cash is greater than $5.0 million, then the interest rate is the "prime rate” as published in The Wall Street Journal ("WSJ") for the relevant period plus 1.50%. If cash liquidity is less than $5.0 million, then the interest rate is the WSJ prime rate plus 2.00%. The SVB Agreement contains certain reporting requirements, conditions, and covenants, including a covenant requiring the Company to maintain an adjusted quick ratio greater than or equal to 1.25 to 1.00. The adjusted quick ratio is the ratio of (a) unrestricted cash and cash equivalents in SVB deposit accounts or securities accounts plus net billed accounts receivable and (b) the sum of current liabilities less the current portion of deferred revenue.
Pursuant to the SVB Agreement, the Company granted a security interest in substantially all of its properties, rights and assets (including certain equity interests of the Company’s subsidiaries). The SVB Agreement contains customary events of default, upon the occurrence of which, the lender may accelerate repayment of any outstanding balance. Additionally, the line of credit contains various provisions that limit our ability to, among other things, incur, create or assume certain indebtedness; create, incur or assume certain liens; make certain investments; make sales, transfers and dispositions of certain property; undergo certain fundamental changes, including certain mergers, liquidations and consolidations; purchase, hold or acquire certain investments; and declare or make certain dividends and distributions.
Contingencies
The Company is exposed to asserted and unasserted claims encountered in the normal course of business. Legal costs related to loss contingencies are expensed as incurred. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s financial position or results of operations.
The Company’s standard arrangements include provisions indemnifying customers against liabilities if the Company’s products infringe a third-party’s intellectual property rights. The Company has not incurred any costs in its continuing operations as a result of such indemnifications and has not accrued any liabilities related to such contingent obligations in the accompanying condensed consolidated financial statements.
(4) Fair Value Measurements
Assets and liabilities measured at fair value are classified into the following categories:
•Level 1: Inputs are unadjusted quoted prices in active markets for identical assets and liabilities.
•Level 2: Inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as interest rates and yield curves that are observable for the asset or liability, either directly or indirectly.
•Level 3: Inputs are generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect an entity’s own estimates of assumptions that market participants would use in pricing the asset or liability.
As of March 31, 2022, the following warrants for the purchase of Qumu’s common stock were outstanding and exercisable:
| | | | | | | | | | | | | | | | | | | | |
Description | | Number of underlying warrant shares | | Warrant exercise price (per share) | | Warrant expiration date |
Warrant issued in conjunction with October 2016 debt financing ("Hale warrant") | | 238,583 | | | $ | 2.80 | | | October 21, 2026 |
Warrant issued to sales partner, iStudy Co., Ltd. ("iStudy warrant") | | 100,000 | | | $ | 2.43 | | | August 31, 2028 |
Total warrants outstanding | | 338,583 | | | | | |
The warrant liability was recorded in the Company’s consolidated balance sheets at its fair value on the respective dates of issuance of the warrants and is revalued on each subsequent balance sheet date until such instrument is exercised or expires,
with any changes in the fair value between reporting periods recorded in other income (expense) of the consolidated statement of operations as "decrease (increase) in fair value of warrant liability." The Company recorded non-cash income of $66,000 and $357,000 for the three months ended March 31, 2022 and 2021, respectively, resulting from the decrease in fair value of the warrant liability.
The Company’s liabilities measured at fair value on a recurring basis and the fair value hierarchy utilized to determine such fair values were as follows at March 31, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| Total Fair Value at March 31, 2022 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Liabilities: | | | | | | | |
Warrant liability - Hale | $ | 644 | | | $ | — | | | $ | — | | | $ | 644 | |
Warrant liability - iStudy | 91 | | | — | | | — | | | 91 | |
Warrant liability | $ | 735 | | | $ | — | | | $ | — | | | $ | 735 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| Total Fair Value at December 31, 2021 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Liabilities: | | | | | | | |
Warrant liability - Hale | $ | 685 | | | $ | — | | | $ | — | | | $ | 685 | |
Warrant liability - iStudy | 116 | | | — | | | — | | | 116 | |
Warrant liability | $ | 801 | | | $ | — | | | $ | — | | | $ | 801 | |
The Company’s evaluation of the probability and timing of a change in control represents an unobservable input (Level 3) that shortens or lengthens the expected term input of the option pricing model for all warrants, and generally correspondingly increases or decreases, respectively, the discounted value of the minimum cash payment component of the Hale warrant. Consequently, as of March 31, 2022 and December 31, 2021, the liability related to each warrant was classified as a Level 3 warrant liability.
The following table represents the significant unobservable input used in the fair value measurement of Level 3 warrant liability instruments:
| | | | | | | | |
| March 31, 2022 | December 31, 2021 |
Probability-weighted timing of change in control | 3.5 years | 3.7 years |
The following table summarizes the changes in fair value measurements for the three months ended March 31, 2022:
| | | | | | | | |
| | Total |
Balance at December 31, 2021 | | $ | 801 | |
Change in fair value | | (66) | |
Balance at March 31, 2022 | | $ | 735 | |
(5) Revenue
The Company generates revenue through the sale of enterprise video content management software, hardware, maintenance and support, and professional and other services. Software sales may take the form of a cloud-hosted software as a service (SaaS), term software license or perpetual software license. Software licenses and appliances revenue includes sales of perpetual software licenses, term software licenses and hardware. Service revenue includes SaaS, maintenance and support, and professional and other services.
Revenues by product category and geography
The Company combines its products and services into four product categories and three geographic regions, based on customer location, as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
Software licenses and appliances | | | | | $ | 111 | | | $ | 108 | |
Service | | | | | | | |
Subscription and support | | | | | 2,655 | | | 2,315 | |
Maintenance and support | | | | | 1,793 | | | 2,664 | |
Subscription, maintenance and support | | | | | 4,448 | | | 4,979 | |
Professional services and other | | | | | 381 | | | 733 | |
Total service | | | | | 4,829 | | | 5,712 | |
Total revenues | | | | | $ | 4,940 | | | $ | 5,820 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
North America | | | | | $ | 3,278 | | | $ | 3,938 | |
Europe | | | | | 1,378 | | | 1,621 | |
Asia | | | | | 284 | | | 261 | |
Total | | | | | $ | 4,940 | | | $ | 5,820 | |
Contract Balances
The Company’s balances for contract assets totaled $563,000 and $446,000 as of March 31, 2022 and December 31, 2021, respectively. The Company’s balances for contract liabilities, which are included in deferred revenue, totaled $11.3 million and $12.4 million as of March 31, 2022 and December 31, 2021, respectively.
During the three months ended March 31, 2022 and 2021, the Company recognized $4.4 million and $4.5 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of each respective period. All other activity in deferred revenue is due to the timing of invoices in relation to the timing of recognizable revenue as described above.
Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately $24.4 million as of March 31, 2022, of which the Company expects to recognize $12.7 million of revenue over the next 12 months and the remainder thereafter. During the three months ended March 31, 2022 and 2021, no revenue was recognized from performance obligations satisfied in previous periods.
(6) Stock-Based Compensation
The Company granted the following stock-based awards in the periods indicated:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| | | | | | | |
Restricted stock units | | | | | 74,795 | | | 98,500 | |
Performance stock units | | | | | 320,755 | | | 163,640 | |
The restricted stock units and performance stock units granted during the three months ended March 31, 2022 and 2021 were granted under the Company’s Second Amended and Restated 2007 Stock Incentive Plan (the "2007 Plan"), a shareholder approved plan.
The Company recognized the following expense related to its share-based payment arrangements (in thousands):
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 |
Stock-based compensation cost, before income tax benefit: | | | | | | | | |
Stock options | | | | | | $ | 112 | | | $ | 171 | |
Restricted stock awards and restricted stock units | | | | | | 239 | | | 418 | |
Performance stock units | | | | | | 5 | | | — | |
Total stock-based compensation | | | | | | $ | 356 | | | $ | 589 | |
| | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 |
Stock-based compensation cost included in: | | | | | | | | |
Cost of revenues | | | | | | $ | 19 | | | $ | 15 | |
Operating expenses | | | | | | 337 | | | 574 | |
Total stock-based compensation | | | | | | $ | 356 | | | $ | 589 | |
(7) Income Taxes
As of both March 31, 2022 and December 31, 2021, the Company’s liability for gross unrecognized tax benefits (excluding interest and penalties) totaled $1.9 million. The Company had accrued interest and penalties relating to unrecognized tax benefits of $78,000 and $72,000 on a gross basis at March 31, 2022 and December 31, 2021, respectively. The change in the liability for gross unrecognized tax benefits reflects an increase in reserves established for federal and state uncertain tax positions. The Company does not currently expect significant changes in the amount of unrecognized tax benefits during the next twelve months.
(8) Computation of Net Loss Per Share of Common Stock
The following table identifies the components of net loss per basic and diluted share (in thousands, except for per share data):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
Net loss per share – basic | | | | | | | |
Net loss | | | | | $ | (4,640) | | | $ | (4,450) | |
Weighted average shares outstanding | | | | | 18,014 | | | 16,443 | |
Net loss per share – basic | | | | | $ | (0.26) | | | $ | (0.27) | |
| | | | | | | |
Net loss per share – diluted | | | | | | | |
Loss attributable to common shareholders: | | | | | | | |
Net loss | | | | | $ | (4,640) | | | $ | (4,450) | |
Numerator effect of dilutive securities | | | | | | | |
Warrants | | | | | — | | | (357) | |
Loss attributable to common shareholders | | | | | $ | (4,640) | | | $ | (4,807) | |
Weighted average shares outstanding – diluted: | | | | | | | |
Weighted average shares outstanding – basic | | | | | 18,014 | | | 16,443 | |
Denominator effect of dilutive securities | | | | | | | |
Warrants | | | | | — | | | 236 | |
Diluted potential common shares | | | | | — | | | 236 | |
Weighted average shares outstanding – diluted | | | | | 18,014 | | | 16,679 | |
Net loss per share – diluted | | | | | $ | (0.26) | | | $ | (0.29) | |
Stock options, warrants and restricted stock units to acquire common shares that were excluded from the computation of diluted weighted-average common shares as their effect is anti-dilutive were as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
Stock options | | | | | 1,036 | | | 1,224 | |
Warrants | | | | | 339 | | | — | |
Restricted stock units | | | | | 484 | | | 534 | |
Total anti-dilutive | | | | | 1,859 | | | 1,758 | |