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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-20728
QUMU CORPORATION
(Exact name of registrant as specified in its charter)
|
| | |
Minnesota | 41-1577970 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
510 1st Avenue North, Suite 305 | |
Minneapolis, | Minnesota | 55403 |
(Address of principal executive offices) | (Zip Code) |
(612) 638-9100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, $0.01 par value | | QUMU | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act):
|
| | | | |
Large accelerated filer | ☐ | | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | | Smaller reporting company | ☒ |
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of July 30, 2020, the registrant had 13,529,596 outstanding shares of $.01 par value common stock.
QUMU CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 2020
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
QUMU CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) |
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Assets | (unaudited) | | |
Current assets: | | |
|
Cash and cash equivalents | $ | 9,887 |
| | $ | 10,639 |
|
Receivables, net of allowance for doubtful accounts of $44 and $45, respectively | 8,224 |
| | 4,586 |
|
Contract assets | 948 |
| | 1,089 |
|
Income tax receivable | 515 |
| | 338 |
|
Prepaid expenses and other current assets | 1,719 |
| | 1,981 |
|
Total current assets | 21,293 |
| | 18,633 |
|
Property and equipment, net of accumulated depreciation of $2,651 and $2,520, respectively | 464 |
| | 596 |
|
Right of use assets – operating leases | 1,490 |
| | 1,746 |
|
Intangible assets, net | 2,537 |
| | 3,075 |
|
Goodwill | 6,718 |
| | 7,203 |
|
Deferred income taxes, non-current | 12 |
| | 21 |
|
Other assets, non-current | 478 |
| | 442 |
|
Total assets | $ | 32,992 |
| | $ | 31,716 |
|
Liabilities and Stockholders’ Equity | |
| | |
|
Current liabilities: | |
| | |
|
Accounts payable and other accrued liabilities | $ | 3,744 |
| | $ | 2,816 |
|
Accrued compensation | 1,329 |
| | 1,165 |
|
Deferred revenue | 11,142 |
| | 10,140 |
|
Operating lease liabilities | 600 |
| | 587 |
|
Financing obligations | 203 |
| | 157 |
|
Note payable | 1,735 |
| | — |
|
Derivative liability | 35 |
| | — |
|
Warrant liability | 1,482 |
| | 2,939 |
|
Total current liabilities | 20,270 |
| | 17,804 |
|
Long-term liabilities: | |
| | |
|
Deferred revenue, non-current | 3,979 |
| | 1,449 |
|
Income taxes payable, non-current | 597 |
| | 585 |
|
Operating lease liabilities, non-current | 1,256 |
| | 1,587 |
|
Financing obligations, non-current | 39 |
| | 83 |
|
Other liabilities, non-current | 151 |
| | — |
|
Total long-term liabilities | 6,022 |
| | 3,704 |
|
Total liabilities | 26,292 |
| | 21,508 |
|
Commitments and contingencies (Note 3) |
|
| |
|
|
Stockholders’ equity: | |
| | |
|
Preferred stock, $0.01 par value, authorized 250,000 shares, no shares issued and outstanding | — |
| | — |
|
Common stock, $0.01 par value, authorized 29,750,000 shares, issued and outstanding 13,529,221 and 13,553,409, respectively | 135 |
| | 136 |
|
Additional paid-in capital | 78,416 |
| | 78,061 |
|
Accumulated deficit | (68,492 | ) | | (65,128 | ) |
Accumulated other comprehensive loss | (3,359 | ) | | (2,861 | ) |
Total stockholders’ equity | 6,700 |
| | 10,208 |
|
Total liabilities and stockholders’ equity | $ | 32,992 |
| | $ | 31,716 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
QUMU CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited – in thousands, except per share data)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | |
| | |
| | |
| | |
|
Software licenses and appliances | $ | 4,061 |
| | $ | 689 |
| | $ | 5,601 |
| | $ | 1,694 |
|
Service | 5,273 |
| | 4,676 |
| | 9,960 |
| | 10,769 |
|
Total revenues | 9,334 |
| | 5,365 |
| | 15,561 |
| | 12,463 |
|
Cost of revenues: | |
| | |
| | |
| | |
|
Software licenses and appliances | 1,477 |
| | 336 |
| | 2,125 |
| | 647 |
|
Service | 1,463 |
| | 1,227 |
| | 2,902 |
| | 2,453 |
|
Total cost of revenues | 2,940 |
| | 1,563 |
| | 5,027 |
| | 3,100 |
|
Gross profit | 6,394 |
| | 3,802 |
| | 10,534 |
| | 9,363 |
|
Operating expenses: | |
| | |
| | |
| | |
|
Research and development | 2,088 |
| | 1,838 |
| | 3,868 |
| | 3,512 |
|
Sales and marketing | 2,181 |
| | 2,212 |
| | 4,399 |
| | 4,564 |
|
General and administrative | 2,320 |
| | 1,579 |
| | 4,913 |
| | 3,325 |
|
Amortization of purchased intangibles | 163 |
| | 201 |
| | 327 |
| | 419 |
|
Total operating expenses | 6,752 |
| | 5,830 |
| | 13,507 |
| | 11,820 |
|
Operating loss | (358 | ) | | (2,028 | ) | | (2,973 | ) | | (2,457 | ) |
Other income (expense): | |
| | |
| | |
| | |
|
Interest expense, net | (22 | ) | | (214 | ) | | (5 | ) | | (419 | ) |
Decrease in fair value of derivative liability | 105 |
| | — |
| | 105 |
| | — |
|
Increase in fair value of warrant liability | (434 | ) | | (1,436 | ) | | (398 | ) | | (1,725 | ) |
Other, net | (37 | ) | | 66 |
| | (197 | ) | | 35 |
|
Total other expense, net | (388 | ) | | (1,584 | ) | | (495 | ) | | (2,109 | ) |
Loss before income taxes | (746 | ) | | (3,612 | ) | | (3,468 | ) | | (4,566 | ) |
Income tax benefit | (54 | ) | | (11 | ) | | (104 | ) | | (15 | ) |
Net loss | $ | (692 | ) | | $ | (3,601 | ) | | $ | (3,364 | ) | | $ | (4,551 | ) |
| | | | | | | |
Net loss per share – basic: | | | | | | | |
Net loss per share – basic | $ | (0.05 | ) | | $ | (0.37 | ) | | $ | (0.25 | ) | | $ | (0.47 | ) |
Weighted average shares outstanding – basic | 13,534 |
| | 9,861 |
| | 13,543 |
| | 9,775 |
|
Net loss per share – diluted: | | | | | | | |
Loss attributable to common shareholders | $ | (820 | ) | | $ | (3,601 | ) | | $ | (3,658 | ) | | $ | (4,551 | ) |
Net loss per share – diluted | $ | (0.06 | ) | | $ | (0.37 | ) | | $ | (0.27 | ) | | $ | (0.47 | ) |
Weighted average shares outstanding – diluted | 13,538 |
| | 9,861 |
| | 13,573 |
| | 9,775 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
QUMU CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited - in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net loss | $ | (692 | ) | | $ | (3,601 | ) | | $ | (3,364 | ) | | $ | (4,551 | ) |
Other comprehensive loss: | |
| | |
| | |
| | |
Net change in foreign currency translation adjustments | (18 | ) | | (278 | ) | | (498 | ) | | (35 | ) |
Total other comprehensive loss | (18 | ) | | (278 | ) | | (498 | ) | | (35 | ) |
Total comprehensive loss | $ | (710 | ) | | $ | (3,879 | ) | | $ | (3,862 | ) | | $ | (4,586 | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
QUMU CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited – in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total |
| Shares | | Amount | | | | |
Balance at December 31, 2018 | 9,624 |
| | $ | 96 |
| | $ | 69,072 |
| | $ | (58,875 | ) | | $ | (3,288 | ) | | $ | 7,005 |
|
Adoption of ASC Topic 842 | — |
| | — |
| | — |
| | 190 |
| | — |
| | 190 |
|
Net loss | — |
| | — |
| | — |
| | (950 | ) | | — |
| | (950 | ) |
Other comprehensive income, net of taxes | — |
| | — |
| | — |
| | — |
| | 243 |
| | 243 |
|
Issuance of stock under employee stock plan, net of forfeitures | 156 |
| | 2 |
| | (1 | ) | | — |
| | — |
| | 1 |
|
Redemption of stock related to tax withholdings on employee stock plan issuances | (15 | ) | | — |
| | (36 | ) | | — |
| | — |
| | (36 | ) |
Stock-based compensation | — |
| | — |
| | 231 |
| | — |
| | — |
| | 231 |
|
Balance at March 31, 2019 | 9,765 |
| | $ | 98 |
| | $ | 69,266 |
| | $ | (59,635 | ) | | $ | (3,045 | ) | | $ | 6,684 |
|
Net loss | — |
| | — |
| | — |
| | (3,601 | ) | | — |
| | (3,601 | ) |
Other comprehensive loss, net of taxes | — |
| | — |
| | — |
| | — |
| | (278 | ) | | (278 | ) |
Issuance of stock under employee stock plan, net of forfeitures | 146 |
| | 1 |
| | 41 |
| | — |
| | — |
| | 42 |
|
Redemption of stock related to tax withholdings on employee stock plan issuances | (4 | ) | | — |
| | (17 | ) | | — |
| | — |
| | (17 | ) |
Stock-based compensation | — |
| | — |
| | 194 |
| | — |
| | — |
| | 194 |
|
Balance at June 30, 2019 | 9,907 |
| | $ | 99 |
| | $ | 69,484 |
| | $ | (63,236 | ) | | $ | (3,323 | ) | | $ | 3,024 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total |
| Shares | | Amount | | | | |
Balance at December 31, 2019 | 13,553 |
| | $ | 136 |
| | $ | 78,061 |
| | $ | (65,128 | ) | | $ | (2,861 | ) | | $ | 10,208 |
|
Net loss | — |
| | — |
| | — |
| | (2,672 | ) | | — |
| | (2,672 | ) |
Other comprehensive loss, net of taxes | — |
| | — |
| | — |
| | — |
| | (480 | ) | | (480 | ) |
Issuance of stock under employee stock plan, net of forfeitures | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Redemption of stock related to tax withholdings on employee stock plan issuances | (29 | ) | | — |
| | (53 | ) | | — |
| | — |
| | (53 | ) |
Stock-based compensation | — |
| | — |
| | 245 |
| | — |
| | — |
| | 245 |
|
Balance at March 31, 2020 | 13,528 |
| | $ | 136 |
| | $ | 78,253 |
| | $ | (67,800 | ) | | $ | (3,341 | ) | | $ | 7,248 |
|
Net loss | — |
| | — |
| | — |
| | (692 | ) | | — |
| | (692 | ) |
Other comprehensive loss, net of taxes | — |
| | — |
| | — |
| | — |
| | (18 | ) | | (18 | ) |
Issuance of stock under employee stock plan, net of forfeitures | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Redemption of stock related to tax withholdings on employee stock plan issuances | — |
| | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Stock-based compensation | — |
| | — |
| | 164 |
| | — |
| | — |
| | 164 |
|
Balance at June 30, 2020 | 13,529 |
| | $ | 135 |
| | $ | 78,416 |
| | $ | (68,492 | ) | | $ | (3,359 | ) | | $ | 6,700 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
QUMU CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited – in thousands)
|
| | | | | | | |
| Six Months Ended June 30, |
| 2020 | | 2019 |
Operating activities: | |
| | |
|
Net loss | $ | (3,364 | ) | | $ | (4,551 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 618 |
| | 809 |
|
Stock-based compensation | 409 |
| | 425 |
|
Accretion of debt discount and issuance costs | 20 |
| | 263 |
|
Gain on lease modification | — |
| | (21 | ) |
Decrease in fair value of derivative liability | (105 | ) | | — |
|
Increase in fair value of warrant liability | 398 |
| | 1,725 |
|
Deferred income taxes | 9 |
| | 7 |
|
Changes in operating assets and liabilities: | | | |
Receivables | (3,685 | ) | | 3,290 |
|
Contract assets | 140 |
| | (1,010 | ) |
Income taxes receivable / payable | (184 | ) | | (15 | ) |
Prepaid expenses and other assets | 394 |
| | 586 |
|
Accounts payable and other accrued liabilities | 1,030 |
| | (397 | ) |
Accrued compensation | 177 |
| | (711 | ) |
Deferred revenue | 3,709 |
| | (1,445 | ) |
Other non-current liabilities | 151 |
| | (24 | ) |
Net cash used in operating activities | (283 | ) | | (1,069 | ) |
Investing activities: | |
| | |
|
Purchases of property and equipment | (29 | ) | | (43 | ) |
Net cash used in investing activities | (29 | ) | | (43 | ) |
Financing activities: | |
| | |
|
Proceeds from issuance of common stock under employee stock plans | — |
| | 42 |
|
Principal payments on financing obligations | (185 | ) | | (158 | ) |
Common stock repurchases to settle employee withholding liability | (54 | ) | | (53 | ) |
Net cash used in financing activities | (239 | ) | | (169 | ) |
Effect of exchange rate changes on cash | (201 | ) | | (6 | ) |
Net decrease in cash and cash equivalents | (752 | ) | | (1,287 | ) |
Cash and cash equivalents, beginning of period | 10,639 |
| | 8,636 |
|
Cash and cash equivalents, end of period | $ | 9,887 |
| | $ | 7,349 |
|
Supplemental disclosures of net cash paid (received) during the period: | |
| | |
|
Income taxes, net | $ | 27 |
| | $ | (12 | ) |
Interest, net | $ | 7 |
| | $ | 8 |
|
Non-cash investing and financing activities: | | | |
Issuance of note payable and derivative liability for cancellation of warrant | $ | 1,855 |
| | $ | — |
|
See accompanying notes to unaudited condensed consolidated financial statements.
QUMU CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| |
(1) | Nature of Business and Basis of Presentation |
Qumu Corporation ("Qumu" or the "Company") provides the software solutions 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 workplace by providing a more efficient and effective way to share knowledge. The world’s largest organizations leverage the Qumu platform for a variety of cloud, on-premise and hybrid deployments. Use cases including self-service webcasting, sales enablement, internal communications, product training, regulatory compliance and customer engagement. The Company markets its 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 manages the marketing of 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, 2019.
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which changes the fair value measurement disclosure requirements of ASC 820. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. The Company adopted ASU 2018-13 effective January 1, 2020. The impact of adopting this standard was not material to the Company's consolidated financial statements or disclosures.
Accounting Standards Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax) which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The purpose of the amendment is to simplify how an entity is required to test goodwill for impairment
by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.
| |
(2) | Intangible Assets and Goodwill |
Intangible Assets
The Company’s amortizable intangible assets consisted of the following (in thousands):
|
| | | | | | | | | | | | | | | |
| June 30, 2020 |
| Customer Relationships | | Developed Technology | | Trademarks / Trade Names | | Total |
Original cost | $ | 4,750 |
| | $ | 7,902 |
| | $ | 2,178 |
| | $ | 14,830 |
|
Accumulated amortization | (3,470 | ) | | (7,670 | ) | | (1,153 | ) | | (12,293 | ) |
Intangibles assets, net | $ | 1,280 |
| | $ | 232 |
| | $ | 1,025 |
| | $ | 2,537 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| Customer Relationships | | Developed Technology | | Trademarks / Trade Names | | Total |
Original cost | $ | 4,878 |
| | $ | 8,135 |
| | $ | 2,182 |
| | $ | 15,195 |
|
Accumulated amortization | (3,293 | ) | | (7,741 | ) | | (1,086 | ) | | (12,120 | ) |
Intangibles assets, net | $ | 1,585 |
| | $ | 394 |
| | $ | 1,096 |
| | $ | 3,075 |
|
Changes to the carrying amount of net amortizable intangible assets consisted of the following (in thousands):
|
| | | |
| Six Months Ended June 30, 2020 |
Balance, beginning of period | $ | 3,075 |
|
Amortization expense | (467 | ) |
Currency translation | (71 | ) |
Balance, end of period | $ | 2,537 |
|
Amortization expense of intangible assets consisted of the following (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Amortization expense associated with the developed technology included in cost of revenues | $ | 68 |
| | $ | 114 |
| | $ | 140 |
| | $ | 231 |
|
Amortization expense associated with other acquired intangible assets included in operating expenses | 163 |
| | 201 |
| | 327 |
| | 419 |
|
Total amortization expense | $ | 231 |
| | $ | 315 |
| | $ | 467 |
| | $ | 650 |
|
Goodwill
On October 3, 2014, the Company completed the acquisition of Kulu Valley, Ltd., subsequently renamed Qumu Ltd., and recognized $8.8 million of goodwill and $6.7 million of intangible assets. The goodwill balance of $6.7 million at June 30, 2020 reflects the impact of foreign currency exchange rate fluctuations since the acquisition date.
As of June 30, 2020, the Company’s market capitalization, without a control premium, was greater than its book value and, as a result, the Company concluded there was no goodwill impairment. Sustained declines in the Company’s market capitalization or a downturn in its future financial performance and/or future outlook could require the Company to record goodwill and other impairment charges. While a goodwill impairment charge is a non-cash charge, it would have a negative impact on the Company's results of operations.
| |
(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 expire at various dates over the next four years. The Company has two leases that each contain a renewal option for a period of five years. Because the Company is not reasonably certain to exercise this option, the option is not considered in determining the lease term.
The components of lease cost were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Operating lease cost | $ | 98 |
| | $ | 85 |
| | $ | 194 |
| | $ | 278 |
|
Finance lease cost: | | | | | | | |
Amortization of right of use assets | 31 |
| | 31 |
| | 62 |
| | 44 |
|
Interest on lease liabilities | 2 |
| | 3 |
| | 4 |
| | 5 |
|
Total finance cost | 33 |
| | 34 |
| | 66 |
| | 49 |
|
Total lease cost | $ | 131 |
| | $ | 119 |
| | $ | 260 |
| | $ | 327 |
|
Future payments used in the measurement of lease liabilities on the condensed consolidated balance sheet as of June 30, 2020 are as follows (in thousands):
|
| | | | | | | |
| Operating leases | | Finance leases |
Remainder of 2020 | $ | 411 |
| | $ | 45 |
|
2021 | 707 |
| | 80 |
|
2022 | 668 |
| | 5 |
|
2023 | 290 |
| | — |
|
2024 | 112 |
| | — |
|
Thereafter | — |
| | — |
|
Total undiscounted lease payments | 2,188 |
| | 130 |
|
Less amount representing interest | (332 | ) | | (5 | ) |
Present value of lease liabilities | $ | 1,856 |
| | $ | 125 |
|
Subleases
On January 17, 2019, the Company terminated a sublease agreement related to its Minneapolis, Minnesota headquarters and contemporaneously modified the Company's primary lease agreement. Upon modification, the Company recognized a gain of $21,000, which is reported in other income (expense) in the Company's condensed consolidated statement of operations for the six months ended June 30, 2019. Sublease income was $35,000 and $73,000 for the three and six months ended June 30, 2019, respectively, which is reported in other income (expense) in the Company's condensed consolidated statement of operations. The Company reported no sublease income for the three and six months ended June 30, 2020.
Note Payable and Derivative Liability
On May 1, 2020, the Company canceled its outstanding warrant to ESW Holdings, Inc., which was for the purchase of up to 925,000 shares of Qumu's common stock at an exercise price of $1.96 per share and expiring January 2028. Additionally, the terms of the warrant provided for a cash settlement in the event of a change of control transaction referred to as a Fundamental Transaction, computed using a Black-Scholes option pricing model with specified inputs stipulated in the warrant agreement. The fair value of the warrant instrument has historically been reported as a liability in Qumu's consolidated financial statements, and, for certain historical reporting periods since its issuance, the shares underlying the warrant instrument were dilutive in the calculation of earnings per share.
As consideration for the warrant cancellation, the Company entered into a secured promissory note to ESW Holdings, Inc. ("note payable"), having a face amount of $1,833,000, which was less than the cash settlement amount of $1,983,000 computed under the terms of the warrant agreement, due on April 1, 2021 and bearing no interest. The payment obligations of the note will be accelerated upon a Fundamental Transaction, and Qumu would be required to pay an additional $150,000 to ESW Holdings, Inc. upon the closing of a Fundamental Transaction. The note to ESW Holdings, Inc. may be prepaid at any time without penalty.
The note payable was recorded at its present value of future cash flows of $1,833,000 discounted at 7.25% (prime plus 4.0%), which was $1,715,000 at May 1, 2020. The value of the note payable will be accreted up to its face value at maturity. As of June 30, 2020, the carrying value of the note payable was $1,735,000, which also approximated its fair value (Level 2).
The note payable contains a $150,000 contingent payment obligation due upon the closing of a Fundamental Transaction on or prior to the April 1, 2021 maturity date. This contingent payment obligation qualifies as an embedded derivative in accordance with ASC Topic 815, Derivatives and Hedging. The embedded derivative is measured at fair value and is remeasured at fair value each subsequent reporting period and reported on the Company's consolidated balance sheet as a derivative liability. Changes in fair value are recognized in other income (expense) in the consolidated statement of operations as "Decrease (increase) in fair value of derivative liability." See Note 4–"Fair Value Measurements."
In connection with the note, the Company and ESW Holdings, Inc. entered into a security agreement dated May 1, 2020 providing for a future security interest in certain assets of the Company that would not attach unless and until the occurrence of the Triggering Event specified therein. The termination of the merger agreement with Synacor, Inc. represented a Triggering Event, resulting in ESW Holdings, Inc. securing an interest in certain of Qumu's cash deposit accounts.
Contingencies
In connection with the termination of merger agreement with Synacor, Inc. on June 29, 2020, Qumu is contingently obligated to pay Synacor, Inc. $1,450,000 upon the occurrence of certain events with respect to an Acquisition Transaction during the 15 months following the termination. The Company has not accrued a liability related to this contingent obligation as the payment is not triggered until an Acquisition Transaction occurs. See Note 9–"Termination of Merger Agreement with Synacor, Inc."
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 June 30, 2020, 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") | | 314,286 |
| | $ | 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 | | 414,286 |
| | | | |
The warrant liability was recorded in the Company's consolidated balance sheets at its fair value on the respective dates of issuance 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 expense of $434,000 and $1.4 million for the three months ended June 30, 2020 and 2019, respectively, and non-cash expense of $398,000 and $1.7 million for the six months ended June 30, 2020 and 2019, respectively, resulting from the change in fair value of the warrant liability.
On May 1, 2020, the Company canceled the ESW warrant in exchange for a note payable (see Note 3–"Commitments and Contingencies") which contained an embedded derivative liability that is measured on a recurring basis at fair value. The Company recorded non-cash income of $105,000 for both the three and six months ended June 30, 2020 resulting from the change in fair value of the derivative liability.
The Company’s liabilities measured at fair value on a recurring basis and the fair value hierarchy utilized to determine such fair values is as follows at June 30, 2020 and December 31, 2019 (in thousands):
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| Total Fair Value at June 30, 2020 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Liabilities: | | | | | | | |
Warrant liability - Hale | $ | 1,224 |
| | $ | — |
| | $ | — |
| | $ | 1,224 |
|
Warrant liability - iStudy | 258 |
| | — |
| | — |
| | 258 |
|
Warrant liability | $ | 1,482 |
| | $ | — |
| | $ | — |
| | $ | 1,482 |
|
Derivative liability | $ | 35 |
| | $ | — |
| | $ | — |
| | $ | 35 |
|
Total | $ | 1,517 |
| | $ | — |
| | $ | — |
| | $ | 1,517 |
|
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| Total Fair Value at December 31, 2019 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Liabilities: | | | | | | | |
Warrant liability - ESW | $ | 2,149 |
| | $ | — |
| | $ | — |
| | $ | 2,149 |
|
Warrant liability - Hale | 645 |
| | — |
| | — |
| | 645 |
|
Warrant liability - iStudy | 145 |
| | — |
| | — |
| | 145 |
|
Total | $ | 2,939 |
| | $ | — |
| | $ | — |
| | $ | 2,939 |
|
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 and, prior to its cancellation, the ESW warrant. Consequently, as of June 30, 2020 and December 31, 2019, the liability related to each warrant was classified as a Level 3 liability.
The Company's evaluation of the probability and timing of a change in control represents an unobservable input (Level 3) that increases or decreases the likelihood of triggering the note payable agreement's Fundamental Transaction contingency, resulting in Level 3 classification of the derivative liability.
The following table represents the significant unobservable input used in the fair value measurement of Level 3 warrant liability instruments: |
| |
| June 30, 2020 |
Probability-weighted timing of change in control | 5.2 years |
The following table summarizes the changes in fair value measurements for the six months ended June 30, 2020:
|
| | | | | | | | | | | | |
| | Warrant liability | | Derivative liability | | Total |
Balance at December 31, 2019 | | $ | 2,939 |
| | $ | — |
| | $ | 2,939 |
|
Cancellation of ESW warrant liability (Note 3) | | (1,855 | ) | | — |
| | (1,855 | ) |
Issuance of derivative liability upon cancellation of ESW warrant | | — |
| | 140 |
| | 140 |
|
Change in fair value | | 398 |
| | (105 | ) | | 293 |
|
Balance at June 30, 2020 | | $ | 1,482 |
| | $ | 35 |
| | $ | 1,517 |
|
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 perpetual software license, a cloud-hosted software as a service (SaaS) or a term software license. Software licenses and appliances revenue includes sales of perpetual software licenses and hardware. Service revenue includes SaaS, term software licenses, maintenance and support, and professional and other services.
Revenues by product category and geography
The Company combines its products and services into three product categories and three geographic regions, based on customer location, as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Software licenses and appliances | $ | 4,061 |
| | $ | 689 |
| | $ | 5,601 |
| | $ | 1,694 |
|
Service | | | | | | | |
Subscription, maintenance and support | 4,673 |
| | 4,154 |
| | 8,833 |
| | 9,717 |
|
Professional services and other | 600 |
| | 522 |
| | 1,127 |
| | 1,052 |
|
Total service | 5,273 |
| | 4,676 |
| | 9,960 |
| | 10,769 |
|
Total revenues | $ | 9,334 |
| | $ | 5,365 |
| | $ | 15,561 |
| | $ | 12,463 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
North America | $ | 7,513 |
| | $ | 3,192 |
| | $ | 11,563 |
| | $ | 7,500 |
|
Europe | 1,616 |
| | 1,904 |
| | 3,490 |
| | 4,145 |
|
Asia | 205 |
| | 269 |
| | 508 |
| | 818 |
|
Total | $ | 9,334 |
| | $ | 5,365 |
| | $ | 15,561 |
| | $ | 12,463 |
|
Contract Balances
The Company’s balances for contract assets totaled $948,000 and $1.1 million as of June 30, 2020 and December 31, 2019, respectively. The Company’s balances for contract liabilities, which are included in deferred revenue, totaled $15.1 million and $11.6 million as of June 30, 2020 and December 31, 2019, respectively.
During the three and six months ended June 30, 2020, the Company recognized $3.9 million and $6.6 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the period. During the three and six months ended June 30, 2019, the Company recognized $3.7 million and $6.3 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the 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 $24.2 million as of June 30, 2020, of which the Company expects to recognize $12.9 million of revenue over the next 12 months and the remainder thereafter. During the six months ended June 30, 2020 and 2019, no revenue was recognized from performance obligations satisfied in previous periods.
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(6) | Stock-Based Compensation |
The Company granted the following stock-based awards in the periods indicated:
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Stock options | — |
| | 8,000 |
| | — |
| | 25,000 |
|
Restricted stock awards and restricted stock units | — |
| | 98,196 |
| | 53,600 |
| | 196,688 |
|
The stock options, restricted stock awards and restricted stock units granted during the six months ended June 30, 2020 and 2019 were granted under the Company's Second Amended and Restated 2007 Stock Incentive Plan (the "2007 Plan"), a shareholder approved plan.
In settlement of vested performance stock units granted in 2018, during the six months ended June 30, 2019 the Company issued 98,492 shares of restricted stock, which was equal to the number of vested 2018 performance stock units multiplied by the performance goals achievement of 100.0%. At December 31, 2019, there were 40,599 shares of common stock underlying the outstanding 2018 performance stock units that were subject to vesting upon the achievement of performance goals for the performance period of January 1, 2019 to December 31, 2019. The outstanding unvested 2018 performance stock units were canceled on February 10, 2020 upon determination by the Compensation Committee of the Company's Board of Directors that the performance metric for the 2019 performance period was not achieved. Accordingly, as of June 30, 2020, there were no performance stock units outstanding.
The Company recognized the following expense related to its share-based payment arrangements (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Stock-based compensation cost, before income tax benefit: | | |
| | |
| | |
| | |
|
Stock options | | $ | 69 |
| | $ | 76 |
| | $ | 138 |
| | $ | 170 |
|
Restricted stock awards and restricted stock units | | 95 |
| | 118 |
| | 271 |
| | 250 |
|
Performance stock units | | — |
| | — |
| | — |
| | 5 |
|
Total stock-based compensation | | $ | 164 |
| | $ | 194 |
| | $ | 409 |
| | $ | 425 |
|
| | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Stock-based compensation cost included in: | | |
| | |
| | |
| | |
|
Cost of revenues | | $ | 5 |
| | $ | 6 |
| | $ | 10 |
| | $ | 14 |
|
Operating expenses | | 159 |
| | 188 |
| | 399 |
| | 411 |
|
Total stock-based compensation | | $ | 164 |
| | $ | 194 |
| | $ | 409 |
| | $ | 425 |
|
As of both June 30, 2020 and December 31, 2019, the Company’s liability for gross unrecognized tax benefits (excluding interest and penalties) totaled $1.8 million. The Company had accrued interest and penalties relating to unrecognized tax benefits of $39,000 and $28,000 on a gross basis at June 30, 2020 and December 31, 2019, 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 June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net loss per share – basic | | | | | | | |
Net loss | $ | (692 | ) | | $ | (3,601 | ) | | $ | (3,364 | ) | | $ | (4,551 | ) |
Weighted average shares outstanding | 13,534 |
| | 9,861 |
| | 13,543 |
| | 9,775 |
|
Net loss per share – basic | $ | (0.05 | ) | | $ | (0.37 | ) | | $ | (0.25 | ) | | $ | (0.47 | ) |
| | | | | | | |
Net loss per share – diluted | | | | | | | |
Loss attributable to common shareholders: | | | | | | |