Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
QUMU > SEC Filings for QUMU > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for QUMU CORP

Form 10-Q for QUMU CORP


8-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth, for the periods indicated, selected items from the Company's condensed consolidated statements of operations.
                                Percentage (%)        Percentage (%)       Percentage (%)        Percentage (%)
                                 of Revenues            Inc/(Dec)            of Revenues           Inc/(Dec)
                              Three Months Ended         Between          Nine Months Ended         Between
                                September 30,            Periods            September 30,           Periods
                               2013        2012       2013 vs. 2012        2013        2012      2013 vs. 2012
Revenues                     100.0  %     100.0  %           0.6  %      100.0  %    100.0  %           5.3  %
Cost of revenues             (52.9 )      (51.6 )            3.1         (52.1 )     (52.3 )            5.0
Gross profit                  47.1         48.4             (2.1 )        47.9        47.7              5.7
Operating expenses:
Research and development      13.2         14.1             (6.2 )        15.1        15.3              4.5
Selling, general and
administrative                38.2         43.4            (11.4 )        43.2        46.2             (1.7 )
Goodwill and intangible
assets impairment charge         -        141.0           (100.0 )           -        50.3           (100.0 )
Amortization of intangibles    0.7          1.4            (44.4 )         0.8         1.4            (40.8 )
Operating loss                (5.0 )     (151.5 )          (96.7 )       (11.2 )     (65.5 )          (82.0 )
Other income (expense), net    0.2          0.3            (43.8 )        (0.3 )         -                -
Loss before income taxes      (4.8 )     (151.2 )          (96.8 )       (11.4 )     (65.5 )          (81.6 )
Income tax expense               -         53.4           (100.0 )           -        15.4           (100.0 )
Net loss                      (4.8 )     (204.6 )          (97.6 )       (11.4 )     (80.9 )          (85.1 )
Noncontrolling interest          -          0.4           (100.0 )         0.2         0.4            (42.1 )
Net loss attributable to
Qumu                          (4.8 )     (204.2 )          (97.6 )       (11.2 )     (80.5 )          (85.3 )

Overview
The Company organizes and manages its business in two reportable segments based on the nature of its products and markets, consisting of disc publishing and enterprise content distribution software (previously referred to as online publishing). Qumu's disc publishing segment supplies customers in North America, Europe and Asia with industry-leading solutions that archive, distribute and protect content on CDs, DVDs and Blu-ray Discs. The Company's enterprise content distribution software segment enables online distribution of content through live and on-demand streaming video as well as secure push-based content delivery to tablets, smart phones and personal computers through its enterprise video communications product line, acquired as part of the acquisition of Qumu, Inc. Qumu distributes its disc publishing systems from its operations in the United States, Germany, Japan and China. The Company also distributes related consumables for use with its disc publishing systems, consisting of media kits, ribbons, ink cartridges and blank CD-R, DVD-R and Blu-ray media. These systems allow customers to distribute digital content in markets and applications such as medical imaging and records; financial services; entertainment content workflows; manufacturing and government law enforcement, including surveillance and evidence management. As Qumu's sales within North America and Europe have averaged nearly 90% of total sales over the past three years, the strength of the economies in these regions plays an important role in determining the success of Qumu.

The Company's enterprise video communications solutions, included in the enterprise content distribution software segment, are deployed primarily through the sale of software licenses, software on a server appliance, software-enabled devices and a cloud-based Software-as-a-Service (SaaS) platform. Software maintenance contracts and professional services are also sold with these solutions. The Company's disc publishing segment earns revenues through the sale of equipment, consumables and parts as well as maintenance contracts, repair and installation services. Product revenues on the accompanying Condensed Consolidated Statements of Operations include the Company's sale of equipment, appliances, software-enabled devices, consumables, parts and software licenses. Service revenues on the Condensed Consolidated Statements of Operations include revenues from maintenance contracts, repair, installation, software and maintenance subscription arrangements and professional services. Qumu has no long-term debt and does not require significant capital investment as all fabrication of its products is outsourced to vendors.


Table of Contents

Results of Operations
Revenues.
The table below describes Qumu's revenues by segment and product category (in
thousands):
                               Three Months Ended                    Inc (Dec)                   Nine Months Ended                    Inc (Dec)
                                   September 30,                      Between                       September 30,                      Between
                         2013                 2012                    Periods             2013                 2012                    Periods
                          $          %         $          %         $           %          $          %         $          %         $          %
Disc publishing
Disc publishing
equipment:
Producer              $  2,009      10 %   $  4,529      22 %   $ (2,520 )    (56 %)   $  6,288      10 %   $  9,692      17 %   $ (3,404 )   (35 %)
Professional             1,560       7 %      1,815       9 %       (255 )    (14 %)      4,713       8 %      7,542      13 %     (2,829 )   (38 %)
Desktop                    379       2 %        507       2 %       (128 )    (25 %)      1,159       2 %      1,499       3 %       (340 )   (23 %)
Total disc publishing
equipment                3,948      19 %      6,851      33 %     (2,903 )    (42 %)     12,160      20 %     18,733      32 %     (6,573 )   (35 %)
Recurring:
Consumables and parts    9,729      46 %      8,509      41 %      1,220       14 %      26,983      44 %     25,597      44 %      1,386       5 %
Service                  3,013      14 %      2,829      14 %        184        7 %       9,113      15 %      8,846      15 %        267       3 %
Total recurring         12,742      60 %     11,338      54 %      1,404       12 %      36,096      58 %     34,443      59 %      1,653       5 %
Total disc publishing   16,690      79 %     18,189      87 %     (1,499 )     (8 %)     48,256      78 %     53,176      91 %     (4,920 )    (9 %)
Enterprise content
distribution software
Software licenses and
appliances               1,625       8 %      1,287       6 %        338       26 %       5,893      10 %      1,897       3 %      3,996     211 %
Recurring software
services                 2,758      13 %      1,473       7 %      1,285       87 %       7,668      12 %      3,621       6 %      4,047     112 %
Total enterprise
content distribution
software                 4,383      21 %      2,760      13 %      1,623       59 %      13,561      22 %      5,518       9 %      8,043     146 %
Total revenues        $ 21,073     100 %   $ 20,949     100 %   $    124        1 %    $ 61,817     100 %   $ 58,694     100 %   $  3,123       5 %
Total revenues
Product               $ 15,302      73 %   $ 16,647      79 %   $ (1,345 )     (8 %)   $ 45,036      73 %   $ 46,227      79 %   $ (1,191 )    (3 %)
Service                  5,771      27 %      4,302      21 %      1,469       34 %      16,781      27 %     12,467      21 %      4,314      35 %
Total revenues        $ 21,073     100 %   $ 20,949     100 %   $    124        1 %    $ 61,817     100 %   $ 58,694     100 %   $  3,123       5 %

Total revenues increased 1% and 5% for the three and nine months ended September 30, 2013 to $21.1 million and $61.8 million, respectively, from $20.9 million and $58.7 million in the respective prior-year periods. The increase in total revenues in the third quarter and year-to-date periods reflects a $1.6 million and $8.0 million increase in enterprise content distribution software segment revenues in each respective period, partially offset by a $1.5 million and $4.9 million reduction in disc publishing revenues for the same periods. Consolidated product revenues decreased $1.3 million and $1.2 million for the three and nine months ended September 30, 2013, respectively, while consolidated service revenues increased $1.5 million and $4.3 million compared to the same prior-year periods. The decrease in product revenues in the current year's third quarter and year-to-date periods was driven by declines of $1.7 million and $5.2 million in sales of disc publishing products, partially offset by growth of $0.3 million and $4.0 million in enterprise content distribution software product sales in each respective period. The rise in service revenues in each period primarily reflects growth in subscription and maintenance revenues from the enterprise content distribution software segment. International sales, inclusive of the impact of currency changes, increased 6% and 8% during the three and nine months ended September 30, 2013, respectively, and comprised 30% and 35% of total revenues for each respective period, compared to 32% and 35% of total revenues for each of the same periods in 2012. In the aggregate, currency fluctuations decreased consolidated revenues for the three and nine months ended September 30, 2013 by less than $0.1 million and $0.2 million, respectively, or less than 1% relative to the same respective periods in 2012.
Disc Publishing. The current-year reductions in disc publishing revenues primarily reflect declines of $2.9 million and $6.6 million in equipment revenues, partially offset by increases in consumables and parts revenues of $1.2 million and $1.4 million for the three and nine months ended September 30, 2013, respectively. The decrease in disc publishing equipment revenues for the current-year periods was impacted by a continuation of an expected transition of customers' purchases over time from physical distribution of content on discs to online forms of distribution. The reduction in equipment revenues in the current-year periods was most significant in the Company's U.S. region and was impacted by large product refresh orders in the first and third quarters of 2012 that did not reoccur in the current-year periods. Additionally, some of the Company's government and commercial customers


Table of Contents

continued to face funding challenges, negatively impacting sales in the current-year periods. The increase in consumable sales in the third quarter and year-to-date periods of 2013 was primarily due to large orders in the second and third quarters for media kits from a U.S. retail customer. Retail product orders tend to be large and fluctuate from quarter to quarter due to timing of purchases. Sales of consumable products from other segments of the Company's customer base declined in the current-year periods as a result of decreased usage.
Enterprise Content Distribution Software. The increase in enterprise content distribution software revenues reflects the continuation of positive sales momentum. The increase in revenues for the three and nine months ended September 30, 2013 consisted of $0.3 million and $4.0 million in software and appliance licenses and $1.3 million and $4.0 million in recurring software revenues (defined as subscription/term/managed service arrangements, maintenance support agreements and professional services) for each respective period. Contracted commitments for the enterprise content distribution software segment for the third quarter and year-to-date period in 2013 totaled $3.8 million and $11.6 million, respectively, and contracted commitment backlog aggregated $10.7 million as of September 30, 2013. The Company defines contracted commitments as the dollar value of signed customer purchase commitments.
Future consolidated revenues will be dependent upon many factors, including the rate of growth of the Company's enterprise content distribution software segment, whether software license arrangements with customers are structured as term or perpetual licenses, which impacts the timing of revenue recognition, the rate of technology substitution and the associated decline in revenue for disc publishing products, the success of the Company's deployment of a complete disc publishing solution for medical imaging in hospitals in China and the rate of adoption of the Company's solutions-based products in targeted vertical markets. Other factors that will influence future consolidated revenues include the timing of new product introductions, the rate of adoption of other new applications for the Company's products in its targeted markets, the performance of the Company's channel partners, the timing of customer orders and related product deliveries, the Company's ability to maintain continuous supply of its products and components, the impact of changes in economic conditions and the impact of foreign currency exchange rate fluctuations.
Gross Profit. Gross profit as a percentage of total revenues was 47.1% and 47.9% for the three and nine months ended September 30, 2013, respectively, compared to 48.4% and 47.7% for the same periods in 2012. Gross profit as a percentage of revenues for the Company's disc publishing segment was 45.4% and 44.2% for the three and nine months ended September 30, 2013, respectively, compared to 48.4% and 48.3% for the same periods in 2012. Gross profit as a percentage of revenues for the Company's enterprise content distribution software segment was 53.4% and 61.2% for the three and nine months ended September 30, 2013, respectively, compared to 48.0% and 42.2% for the same periods in 2012. The enterprise content distribution software margins for the three and nine months ended September 30, 2013 are inclusive of the impact of approximately $0.1 million and $0.4 million, respectively, in amortization expense associated with intangible assets acquired as a result of the Qumu, Inc. acquisition, compared to $0.2 million and $0.6 million for the respective prior-year periods. Cost of revenues in 2013 are expected to include approximately $0.6 million of amortization expense for purchased intangibles.
The consolidated gross profit as a percentage of total revenues was negatively impacted in both current-year periods by a shift in the concentration of disc publishing sales to lower margin products, consisting primarily of a lower volume and concentration of equipment sales and a higher volume and concentration of media kit sales. In addition, a reduction in the volume of Producer equipment sales resulted in an underabsorption of fixed manufacturing costs, negatively impacting gross profit as a percentage of revenues. The generation in the current-year periods of improved margins from the enterprise content distribution software segment partially offset the impact of the decline in disc publishing margins in the third quarter and resulted in a slight improvement in the consolidated gross margin in the current year-to-date period. The improvement in software segment margins compared to the prior-year periods reflects an increased volume and concentration of higher margin software license revenues relative to service revenues and an increased installed base of solutions generating higher service revenues to absorb fixed service costs. Future gross profit margins will be impacted by the rate of growth of the Company's enterprise content distribution software segment, which has historically generated higher gross margins than the Company's disc publishing segment. Future gross margins will also continue to be affected by many other factors, including product mix, the timing of new product introductions, the timing of customer orders and related product deliveries, changes in material costs and supply sources, manufacturing volume, the growth rate of service-related revenues relative to associated service support costs and foreign currency exchange rate fluctuations.
Operating Expenses. Total operating expenses were $11.0 million and $36.5 million for the three and nine months ended September 30, 2013, respectively, compared to $41.9 million and $66.4 million in the respective prior-year periods. Operating expenses for the three and nine months ended September 30, 2013 declined $30.9 million and $29.9 million, respectively, compared to the prior-year periods, primarily due to a $29.5 million non-cash charge incurred in the third quarter of 2012 for the impairment of goodwill and intangible assets associated with the enterprise content distribution software business. The direct operating expenses for the enterprise content distribution software segment were $4.8 million and $16.2 million for the three and nine months ended September 30, 2013, respectively, representing a decrease of $0.4 million and an increase of $1.2 million from the respective prior-year periods, exclusive of the impact of impairment charges. Direct operating expenses for the disc publishing segment decreased


Table of Contents

by $1.0 million and $1.6 million to $6.2 million and $20.3 million for the three and nine months ended September 30, 2013, respectively.
Research and development expenses totaled $2.8 million and $9.4 million for the three and nine months ended September 30, 2013, respectively, representing 13.2% and 15.1% of revenues for each respective period. For the respective prior-year periods, research and development expenses totaled $3.0 million and $9.0 million, representing 14.1% and 15.3% of revenues for each respective prior-year period. Expenses in both current-year periods were impacted by headcount reductions and reduced project spending in the disc publishing segment. These expense reductions were offset in the current year-to-date period by the impact of an increase in headcount and project spending to support software development for the enterprise content distribution software segment.
Selling, general and administrative expenses totaled $8.0 million and $26.7 million for the three and nine months ended September 30, 2013, or 38.2% and 43.2% of revenues, respectively, compared to expenses in the same prior-year periods of $9.1 million and $27.1 million, or 43.4% and 46.2% of revenues for each respective period. The $1.1 million and $0.4 million decreases in expenses in the current-year periods primarily reflect reduced sales and marketing headcount and marketing programs as well as lower legal fees in the disc publishing segment, partially offset by an increase in expenses to support growth in the enterprise content distribution software segment, including increased sales commissions stemming from an increase in revenues relative to the prior year and non-recurring severance costs.
Amortization of Purchased Intangibles. Operating expenses for the three and nine months ended September 30, 2013 include approximately $0.2 million and $0.5 million for the amortization of intangible assets acquired as part of the Company's acquisition of Qumu, Inc. in October 2011, compared to $0.3 million and $0.8 million in the respective prior-year periods. Operating expenses in 2013 are expected to include approximately $0.6 million of amortization expense associated with the Qumu, Inc. acquisition, exclusive of the portion classified in cost of revenue.
Other Income, Net. The Company recognized interest income on cash and marketable securities of $9,000 and $24,000 for the three and nine months ended September 30, 2013, respectively, compared to $27,000 and $48,000 for the respective prior-year periods. Other income also included net gains (losses) on foreign currency transactions of $25,000 and $(190,000) for the three and nine months ended September 30, 2013, respectively, compared to $23,000 and $(62,000) for the respective prior-year periods.
Income Taxes. The provision for income taxes represents federal, state, and foreign income taxes or income tax benefit on income or loss. The Company recorded an income tax benefit of $1,000 and $2,000 for the three and nine months ended September 30, 2013, respectively. The Company recorded income tax expense for the three and nine months ended September 30, 2012 of $11.2 million and $9.0 million, respectively.
Amounts recorded in the current-year periods reflect the impact of U.S. state income taxes, offset by state tax refunds pertaining to prior-year periods. Income tax expense recorded in the prior-year periods primarily reflects the impact of a discrete charge for the establishment in the third quarter 2012 of a valuation allowance against the Company's U.S. deferred tax assets. Net Loss / Net Loss Per Share. Resulting net loss attributable to Qumu for the three and nine months ended September 30, 2013 was $1.0 million and $6.9 million, respectively, compared to $42.8 million and $47.2 million for the same prior-year periods. Related net loss per diluted share amounts were $0.12 and $0.80 for the three and nine months ended September 30, 2013, respectively, compared to $4.23 and $4.64 for the respective prior-year periods. Segment Operating Results
Management evaluates segment performance based on revenue and operating income
(loss). The operating income (loss) for the Company's enterprise content distribution software and disc publishing segments include all the direct costs of each business. Beginning with the first quarter of fiscal 2013, the measurement of operating income (loss) by segment includes an allocation of corporate expenses incurred to support each reportable segment. Previously reported amounts included all corporate and other unallocated expenses in the disc publishing segment, a portion of which were incurred to support the enterprise content distribution software segment. The Company revised the amounts previously reported as operating income (loss) by segment to align to the current period's presentation. This realignment had no effect on previously reported consolidated net sales or consolidated operating income (loss).


Table of Contents

Operating income (loss) for each reportable segment was as follows (in thousands):

                                                  Disc          Enterprise Content
Reportable Segments                            Publishing      Distribution Software         Total
Three months ended September 30, 2013
Operating income (loss)                      $      2,552      $        (3,606 )     (1)  $   (1,054 )
Three months ended September 30, 2012
Operating income (loss)                             2,431              (34,160 )     (2)     (31,729 )
Nine months ended September 30, 2013
Operating income (loss)                             4,641              (11,549 )     (1)      (6,908 )
Nine months ended September 30, 2012
Operating income (loss)                             5,799              (44,230 )     (2)     (38,431 )

(1) Operating loss for the enterprise content distribution software segment for the three and nine months ended September 30, 2013 includes amortization expense of $0.3 million and $0.9 million, respectively, for amortization of intangible assets established as part of the acquisition of Qumu, Inc.

(2) Operating loss for the enterprise content distribution software segment for the three and nine months ended September 30, 2012 includes recognized asset impairment charges of $22.2 million of goodwill and $7.3 million of other intangible assets.

Disc Publishing. Operating income increased $0.1 million during the third quarter of 2013 compared to the third quarter of 2012 and decreased $1.2 million during the nine months ended September 30, 2013 compared to the same period in 2012. Operating income in the current-year's third quarter and year-to-date periods was reduced by the gross margin impact of a $1.5 million and a $4.9 million decline in revenues in each respective period, combined with a decrease in gross margin as a percentage of revenues to 45.4% from 48.4% in the third quarter and a decrease to 44.2% from 48.3% for the current year-to-date period. The decline in margins was primarily due to a shift in the concentration of disc publishing sales to lower margin products, consisting primarily of a lower volume and concentration of equipment sales and a higher volume and concentration of media kit sales. A reduction compared to the prior-year periods in direct expenses and allocated corporate costs to support the disc publishing business offset the impact of the revenue and margin decline in the third quarter of 2013 and partially offset the impact of the same in the current year-to-date period. The reduction in direct expenses occurred as cost optimization efforts over the past several months lowered employee costs and reduced spending for research and development projects and marketing programs. Additionally, legal expenses declined in the current-year periods as a result of the impact of the settlement in the prior-year's third quarter of a patent infringement lawsuit. The reduction in allocated corporate costs for both current-year periods was driven primarily by the redirection of a portion of existing corporate resources to support the increasing business requirements of the enterprise content distribution software segment.
Enterprise Content Distribution Software. Operating loss decreased $30.6 million during the third quarter of 2013 compared to the third quarter of 2012 and decreased $32.7 million during the nine months ended September 30, 2013 compared to the same period in 2012. The decrease in operating loss in the current year's third quarter and year-to-date periods was driven primarily by a $29.5 million non-cash charge incurred in the third quarter of 2012 for the impairment of goodwill and intangible assets associated with the enterprise content distribution software business. The decrease in operating loss in the third quarter and year-to-date periods of 2013 was further impacted by a $1.6 million and $8.0 million increase in revenue for each respective period, coupled with an increase in gross margin as a percentage of revenue to 53.4% from 48.0% in the third quarter of 2013 and an increase to 61.2% from 42.2% in the current year-to-date period. Partially offsetting the favorable revenue and margin impact in each current-year period was an increase in direct operating expenses and allocated corporate expenses. The primary contributors to the increase in direct operating costs in both current-year periods were higher sales commissions resulting from the increase in revenues and increased costs to support software development projects. Additionally, nonrecurring severance costs contributed to the increased expenses in the current year-to-date period. The increase in allocated corporate costs was driven primarily by increased consumption of existing corporate resources to support the growth initiatives of the enterprise content distribution software segment.


Table of Contents

Liquidity and Capital Resources
The Company expects it will be able to maintain current operations and anticipated capital expenditure requirements for the foreseeable future through its internally generated funds and cash reserves. At September 30, 2013, the Company had working capital of $51.1 million, down $5.1 million from working capital reported at December 31, 2012. The primary contributors to the decrease in working capital were the generation of a net loss adjusted for non-cash items during the nine months ended September 30, 2013 of $2.6 million, purchases of . . .

  Add QUMU to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for QUMU - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.