8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
	FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): October 26, 2017
Qumu Corporation
(Exact name of Registrant as Specified in its Charter)
	Minnesota
(State Or Other Jurisdiction Of Incorporation)

000-20728	41-1577970
(Commission File Number)	(I.R.S. Employer Identification No.)
510 1st Avenue North, Suite 305
Minneapolis, MN	55403
(Address Of Principal Executive Offices)	(Zip Code)

	(612) 638-9100
Registrant’s Telephone Number, Including Area Code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

Items under Sections 1, 3, 4 and 6 through 8 are not applicable and therefore omitted.

ITEM 2.02RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

Qumu Corporation (the “Company”) hereby furnishes as Exhibit 99.1 a press release issued on October 31, 2017 disclosing material non-public information regarding its results of operations for the quarter ended September 30, 2017 and hereby furnishes as Exhibit 99.2 statements of Vern Hanzlik, its President and Chief Executive Officer, made on November 1, 2017 at a telephone conference relating to the quarter ended September 30, 2017 results.

ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS.

On October 26, 2017, David Ristow was appointed as the Company’s Interim Chief Financial Officer effective November 7, 2017.

Mr. Ristow, age 47, will serve as interim Chief Financial Officer until the Company completes its search for a new Chief Financial Officer. From April 2017 until the Company’s engagement, Mr. Ristow acted as Chief Financial Officer of Ascent Solutions, a consulting company delivering cybersecurity, cloud, IT strategy, and infrastructure enablement services. From July 2016 to April 2017, Mr. Ristow acted as Chief Financial Officer for eGrowcery, an international e-commerce software business. From January 2016 to June 2016, Mr. Ristow acted as the Chief Financial Officer of Noribachi, a manufacturer of high output commercial lighting solutions operating on an Internet Of Things platform. From 2012 to 2016, Mr. Ristow acted as Chief Financial Officer of portfolio companies and Director of Investments for Eurovestech Plc. From 2007 to 2012, Mr. Ristow acted as Chief Financial Officer of KSS Retail, an international software business providing price optimization solutions to retailers throughout the world, which was sold in January 2010. Mr. Ristow has a B.S. in Accounting from the University of Southern California and began his finance career with Deloitte. Mr. Ristow is an actively licensed Certified Public Accountant, member of the CGMA and veteran of the USMC.

On October 26, 2017, the Company entered into statement of work under a client services agreement with Salo, LLC for the provision of Mr. Ristow’s services as the Company’s Interim Chief Financial Officer. Pursuant to statement of work, the Company will pay Salo $245 per hour for Mr. Ristow’s services to the Company. The statement of work is terminable by either party upon 30 days’ advance written notice.

Other than as described above, Mr. Ristow has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, nor are any transactions currently proposed.

ITEM 9.01FINANCIAL STATEMENTS AND EXHIBITS.

Exhibit No.	Description
99.1	Press Release issued on October 31, 2017.
99.2	Statements of Vern Hanzlik, President and Chief Executive Officer, at a telephone conference held on November 1, 2017.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	QUMU CORPORATION
	By:	/s/ Vern Hanzlik
		Vern Hanzlik
		President and Chief Executive Officer
Date: November 1, 2017

EX-99.1

EXHIBIT 99.1

Qumu Announces Third Quarter 2017 Results

Year-over-year improved gross margins and operating results

Conference Call Wednesday, November 1 at 10:00 a.m. ET

Minneapolis, MN – October 31, 2017 – Qumu Corporation (NASDAQ: QUMU) today reported financial results for the third quarter 2017.

Third quarter revenue was $7.6 million, compared to $7.1 million in the third quarter 2016, and net loss was $(2.3) million, or a loss of $(0.25) per share, compared to $(2.5) million, or a loss of $(0.27) per share, in the third quarter 2016. Third quarter 2017 results included foreign currency losses of $(0.02) per share. Third quarter adjusted EBITDA (a non-GAAP measure) was a loss of $(0.9) million, compared to an adjusted EBITDA loss of $(1.4) million for the third quarter 2016.

For the nine months ended September 30, 2017, revenue was $20.9 million, compared to $22.4 million last year, and net loss was $(8.5) million, or a loss of $(0.91) per share, compared to $(10.9) million, or a loss of $(1.18) per share, last year. For the nine months ended September 30, 2017, adjusted EBITDA was a loss of $(3.8) million, compared to an adjusted EBITDA loss of $(7.4) million last year.

“This was a notable quarter for Qumu. We signed a large number of new customers as our Qx strategy, announced in May, gains momentum. Revenues were within guidance but were at the lower end of the range due to a contingent sale representing more than $600,000 which we expect to be recognized as revenue in the fourth quarter. Our growing number and variety of new blue-chip customers tells me that our Qx enterprise video platform is resonating within the Global 2000. These organizations know their future depends on an adaptive workforce with a high digital IQ. Video will permeate all facets of their business and they need an infrastructure with the flexibility to scale,” said Vern Hanzlik, Qumu’s president and CEO.

Qumu has also announced the appointment of Dave Ristow as Interim Chief Financial Officer, effective November 7, 2017. Ristow brings more than 20 years of experience in the CFO role, with leadership expertise in strategic planning, stakeholder relations, financial process design and corporate governance. He has worked with companies in various industries including software as a service, professional services and medical technology.

Other Financial Highlights

• Subscription, maintenance and support revenue for the third quarter 2017 was $5.1 million compared to $5.0 million for the third quarter 2016. The variance in subscription, maintenance and support revenue primarily resulted from growth in the customer base, as well as the timing of customer renewals.

• Gross margin for the third quarter 2017 was 61.6% compared to 59.8% for the third quarter 2016. Gross margin for the nine months ended September 30, 2017 was 62.8% compared to 56.9% for the nine months ended September 30, 2016.

• Total headcount was 120 as of September 30, 2017 compared to 119 as of June 30, 2017 and 152 as of September 30, 2016.

• Cash and marketable securities were $7.7 million as of September 30, 2017, compared to $9.0 million as of June 30, 2017, reflecting the third quarter operating loss and the impact on cash from changes in working capital.

Guidance

For the fourth quarter 2017, revenue is expected to be in the range of $8.5 million to $9.5 million, compared to $9.3 million in the fourth quarter last year. Total gross margin percentage is expected to be in the mid to high 60s in the fourth quarter. Fourth quarter net loss is expected to be in the range of $(1.4) million to $(900,000), or $(0.15) to $(0.10) per diluted share, with weighted-average shares outstanding of approximately 9.4 million shares. Adjusted

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EBITDA for the fourth quarter 2017 is expected to be in the range of breakeven to income of $500,000, compared to adjusted EBITDA income of $790,000 in the fourth quarter 2016.

For the full year 2017, revenue is expected to be in the range of $29.4 million to $30.4 million. Total gross margin percentage is expected to improve from the low 60s early in the year to the mid 60s late in the year. Net loss is expected to be in the range of $(9.9) million to $(9.4) million, or $(1.05) to $(1.00) per diluted share, with weighted-average shares outstanding of approximately 9.4 million shares. Adjusted EBITDA loss for the full year 2017 is expected to be in the range of a loss of $(3.8) million to $(3.3) million compared to an adjusted EBITDA loss of $(6.6) million in fiscal 2016. The Company expects a tax benefit of $200,000 in fiscal 2017.

Term Loan

The Company has continued to experience recurring operating losses and negative cash flows from operating activities. The ability of the Company to continue as a going concern is dependent upon the Company maintaining compliance with the covenants of its term loan credit agreement with HCP-FVD, LLC, an affiliate of Hale Capital Partners, LP, the administrative agent. If an event of default occurs due to the Company not maintaining compliance with the covenants, the lender may accelerate the repayment of outstanding principal or exercise its other rights as a secured lender, which would negatively impact the Company’s ability to fund its working capital requirements, capital expenditures and general corporate expenses. The Company likely will not comply at October 31, 2017 with the covenant requiring that cash and eligible accounts receivable be at least 118% of the outstanding obligations under the credit agreement. Outstanding obligations under the credit agreement were $8,000,000 at September 30, 2017 and October 31, 2017. The covenant shortfall is primarily due to provisions of the credit agreement requiring the exclusion of portions of certain large accounts receivable from eligible accounts receivable. These provisions resulted in $974,000 of accounts receivable from two Fortune 50 customers being excluded from eligible accounts receivable at October 31, 2017. Additionally, the Company is unable to project, with reasonable certainty, future compliance with this minimum cash and eligible accounts receivable covenant over the next twelve months. If an event of default occurred and the term loan were accelerated, the Company would be unable to fund full repayment of the term loan obligations from its existing cash and fund its other liquidity needs within the next twelve months. At September 30, 2017, the Company had cash and cash equivalents of $7,738,000 as compared to $8,000,000 in outstanding obligations relating to the term loan and a required $800,000 prepayment fee. The Company’s cash position as compared to the outstanding obligations of the credit agreement, the Company’s historical and expected cash flows from operating activities, and the likelihood of non-compliance with covenants indicate substantial doubt exists regarding the Company's ability to continue as a going concern. The Company is continuing to negotiate with HCP-FVD, LLC and Hale Capital Partners, LP regarding the covenants and a potential amendment of or waiver to the credit agreement, receipt of which cannot be assured.

Conference Call

The Company has scheduled a conference call and webcast to review its third quarter 2017 results tomorrow, November 1, 2017 at 10:00 a.m. Eastern Time. The dial-in number for the conference call is 877-456-6914 for domestic participants and 929-387-3794 for international participants. Investors can also access a webcast of the live conference call by linking through the investor relations section of the Qumu website, www.qumu.com. Webcasts will be archived on Qumu’s website.

Non-GAAP Information

To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company uses adjusted EBITDA (a non-GAAP measure), which excludes certain items from net income (loss) (a GAAP measure). Adjusted EBITDA excludes items related to interest income and expense, the impact of income-based taxes, depreciation and amortization, stock-based compensation, change in fair value of warrant liability, foreign currency gains and losses, and other non-operating income and expenses.

The Company uses both GAAP and non-GAAP measures when planning, monitoring, and evaluating the Company’s performance. The Company believes that adjusted EBITDA is useful to investors because it provides supplemental information that allows investors to review the Company's results of operations from the same perspective as management and the Company's board of directors. Non-GAAP results are presented for supplemental informational purposes only for understanding our operating results. The non-GAAP results should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies.

See the attached Supplemental Financial Information for a reconciliation of net loss, a GAAP measure, to adjusted EBITDA, a non-GAAP measure, for the three and nine months ended September 30, 2017 and 2016.

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Forward-Looking Statements

This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” or “estimate” or comparable terminology are intended to identify forward-looking statements. Such forward-looking statements include, for example, statements about: the Company’s future revenue and operating performance, cash balances, future product mix or the timing of recognition of revenue, and the demand for the Company’s products or software. The statements made by the Company are based upon management’s current expectations and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and other factors set forth in the Company’s filings with the Securities and Exchange Commission.

About Qumu

Qumu (NASDAQ: QUMU) helps the world’s largest companies realize the value of putting video to work for their digital workforce. Organizations use Qumu software to create, manage and share video-live streaming and on demand-turning video into an always-on resource and connecting thousands of stakeholders across a single enterprise.

Investor Contact:

Vern Hanzlik

President and CEO

Qumu Corporation    

vern.hanzlik@qumu.com
650-396-8531

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QUMU CORPORATION

Condensed Consolidated Statements of Operations

(unaudited - in thousands, except per share data)

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2017			2016			2017			2016
Revenues:
Software licenses and appliances	$	1,822		$	1,154		$	3,971		$	3,952
Service	5,751			5,956			16,967			18,409
Total revenues	7,573			7,110			20,938			22,361
Cost of revenues:
Software licenses and appliances	916			563			1,778			1,932
Service	1,995			2,294			6,003			7,697
Total cost of revenues	2,911			2,857			7,781			9,629
Gross profit	4,662			4,253			13,157			12,732
Operating expenses:
Research and development	1,769			1,986			5,676			6,746
Sales and marketing	2,509			2,435			7,484			8,945
General and administrative	2,083			2,109			6,552			7,344
Amortization of purchased intangibles	226			221			675			674
Total operating expenses	6,587			6,751			20,387			23,709
Operating loss	(1,925		)	(2,498		)	(7,230		)	(10,977		)
Other income (expense):
Interest expense, net	(343		)	(13		)	(994		)	(40		)
Change in value of warrant liability	15			—			(52		)	—
Other, net	(166		)	(13		)	(345		)	(24		)
Total other expense, net	(494		)	(26		)	(1,391		)	(64		)
Loss before income taxes	(2,419		)	(2,524		)	(8,621		)	(11,041		)
Income tax benefit	(110		)	(39		)	(139		)	(133		)
Net loss	$	(2,309	)	$	(2,485	)	$	(8,482	)	$	(10,908	)
Net loss per share – basic and diluted:
Net loss per share	$	(0.25	)	$	(0.27	)	$	(0.91	)	$	(1.18	)
Weighted average shares outstanding	9,404			9,241			9,335			9,232

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QUMU CORPORATION

Condensed Consolidated Balance Sheets

(in thousands)

Assets	September 30, 2017			December 31, 2016
Current assets:	(unaudited)
Cash and cash equivalents	$	7,738		$	10,364
Receivables, net	6,425			7,495
Income taxes receivable	180			317
Prepaid expenses and other current assets	1,813			2,470
Total current assets	16,156			20,646
Property and equipment, net	1,114			1,827
Intangible assets, net	6,807			8,110
Goodwill	7,335			6,749
Deferred income taxes, non-current	68			70
Other assets, non-current	4,437			4,827
Total assets	$	35,917		$	42,229
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	2,712		$	2,394
Accrued compensation	1,988			2,361
Deferred revenue	9,411			8,992
Deferred rent	331			283
Financing obligations	284			508
Warrant liability	945			893
Total current liabilities	15,671			15,431
Long-term liabilities:
Deferred revenue, non-current	364			423
Income taxes payable, non-current	3			6
Deferred tax liability, non-current	199			294
Deferred rent, non-current	537			712
Financing obligations, non-current	13			170
Term loan, non-current	6,856			6,617
Total long-term liabilities	7,972			8,222
Total liabilities	23,643			23,653
Stockholders’ equity:
Common stock	94			92
Additional paid-in capital	67,941			66,864
Accumulated deficit	(52,955		)	(44,473		)
Accumulated other comprehensive loss	(2,806		)	(3,907		)
Total stockholders’ equity	12,274			18,576
Total liabilities and stockholders’ equity	$	35,917		$	42,229

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QUMU CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

	Nine Months Ended   September 30,
	2017			2016
Operating activities:
Net loss	$	(8,482	)	$	(10,908	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,309			2,515
Stock-based compensation	1,090			1,035
Accretion of debt discount and issuance costs	364			—
Change in value of warrant liability	52			—
Deferred income taxes	(112		)	(148		)
Changes in operating assets and liabilities:
Receivables	1,204			4,892
Income taxes receivable / payable	142			265
Prepaid expenses and other assets	1,070			(727		)
Accounts payable and other accrued liabilities	563			(884		)
Accrued compensation	(405		)	(1,823		)
Deferred revenue	151			(1,857		)
Deferred rent	(132		)	(193		)
Other non-current liabilities	—			(226		)
Net cash used in operating activities	(2,186		)	(8,105		)
Investing activities:
Sales and maturities of marketable securities	—			6,250
Purchases of property and equipment	(22		)	(52		)
Net cash provided by (used in) investing activities	(22		)	6,198
Financing activities:
Principal payments on financing obligations	(383		)	(386		)
Payments for debt issuance costs	(125		)	—
Common stock repurchases to settle employee withholding liability	(11		)	(18		)
Net cash used in financing activities	(519		)	(404		)
Effect of exchange rate changes on cash	101			(120		)
Net decrease in cash and cash equivalents	(2,626		)	(2,431		)
Cash and cash equivalents, beginning of period	10,364			7,072
Cash and cash equivalents, end of period	$	7,738		$	4,641

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QUMU CORPORATION

Supplemental Financial Information

(unaudited - in thousands)

A summary of revenue is as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
	2017		2016		2017		2016
Software licenses and appliances	$	1,822	$	1,154	$	3,971	$	3,952
Service
Subscription, maintenance and support	5,113		4,986		15,061		15,223
Professional services and other	638		970		1,906		3,186
Total service	5,751		5,956		16,967		18,409
Total revenue	$	7,573	$	7,110	$	20,938	$	22,361

A reconciliation from GAAP results to adjusted EBITDA is as follows:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2017			2016			2017			2016
Net loss	$	(2,309	)	$	(2,485	)	$	(8,482	)	$	(10,908	)
Interest expense, net	343			13			994			40
Income tax benefit	(110		)	(39		)	(139		)	(133		)
Depreciation and amortization expense:
Depreciation and amortization in cost of revenues	6			15			25			55
Depreciation and amortization in operating expenses	227			271			716			833
Total depreciation and amortization expense	233			286			741			888
Amortization of intangibles included in cost of revenues	302			308			893			953
Amortization of intangibles included in operating expenses	226			221			675			674
Total amortization of intangibles expense	528			529			1,568			1,627
Total depreciation and amortization expense	761			815			2,309			2,515
EBITDA	(1,315		)	(1,696		)	(5,318		)	(8,486		)
Change in fair value of warrant liability	(15		)	—			52			—
Other expense, net	166			13			345			24
Stock-based compensation expense:
Stock-based compensation included in cost of revenues	(3		)	9			29			27
Stock-based compensation included in operating expenses	310			286			1,061			1,008
Total stock-based compensation expense	307			295			1,090			1,035
Adjusted EBITDA	$	(857	)	$	(1,388	)	$	(3,831	)	$	(7,427	)

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EX-99.2

Exhibit 99.2

Qumu Corporation

Third Quarter 2017

Earnings Conference Call

November 1, 2017

Operator

[Introduction]

Vern Hanzlik

Good morning and thank you for joining our third quarter 2017 earnings conference call.

Our comments today may include forward-looking statements relating to our expectations, plans and prospects. These statements are based on information available to us at the time of this presentation and, by their nature, involve risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Risks and uncertainties associated with our business are described in our most recent annual report on Form 10-K and any subsequently filed periodic reports on Form 10-Q.

Any unreleased features or services referenced in this presentation, or other public statements, are not currently available and may not be delivered on time or at all. Customers who purchase our products or services should make sure that their decisions are based on features that are currently available. We assume no obligation to, and do not intend to, update any forward-looking statements.

I’m sure you saw our announcement last week that our CFO Peter Goepfrich is departing, effective November 6^th, after accepting another position with a private equity company. I just want to say thanks to Peter. He did a phenomenal job and guided the company’s transition to a position of solid expense management and reporting compliance. We have a search firm already working on candidates for our new CFO.

Meanwhile, with the earnings release yesterday, we are announcing our Interim CFO, Dave Ristow who joins us effective November 7, 2017. Dave brings more than 20 years of experience in the CFO role, with leadership expertise in strategic planning, stakeholder relations, financial process design and corporate governance. He has worked with companies in various industries including software as a service, professional services and medtech.

I’d like to make a few comments before I review the numbers.

Qumu’s third quarter 2017 was an exciting quarter as we continue to see tangible results from our Qumu Qx vision which we announced only five months ago. Qx is our end-to-end suite of solutions – the most compete and extensible platform in the industry. Concurrent with this bold product advancement, we continue to manage the business and build our team.

Here are a few key accomplishments for the quarter:

• We expanded our base – new customers made up 30% of sales

• Our business development strategy gained momentum, with partner channels also representing 30% of sales

• We closed our largest hybrid deployment to date

• We launched new extensions to our Qx product platform

• Finally, Qumu received industry acknowledgment of our leadership in several noteworthy rankings

I’ll go over each of these in more detail later in the discussion.

Let me touch on a few financial highlights. Revenue for the quarter of $7.6 million and the net EPS loss of 25 cents per share were below guidance. A significant deal with a large financial company through our AT&T partnership, was delayed due to the customer’s testing requirements, and will close in the fourth quarter. The adjusted EBITDA

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loss of $857,000 for the quarter reflects our operational efficiency as we continue to manage our finances. Gross margins – at 61.6 percent – were impacted slightly by the increased percentage of sales through the channel.

During the quarter, we signed 12 new accounts, including stellar names like:

• Campbell’s

• Pepperidge Farm

• Hy-Vee

• Xfiniti

• French banking and financial services company Societe Generale, and

• Japanese pharmaceutical leaders, Sumitomo, Dainippon Pharma and Mitsubishi Tanabe Pharma.

Two of these new customers represent $1.5 million in annualized new bookings coming through the channel partnership with AT&T. The revenue mix was 76% for the US region, 21% for EMEA, 3% for Asia Pacific.

I’m very pleased by the number of new customers and the variety of industries they represent. While we have always had a strong reputation in financial services, chemical and communications companies, these new customers demonstrate the appeal of our products and our depth in other video-intensive industries, like pharmaceutical and food.

These new customers are important wins for our land and expand strategy because they build our base. Our blue-chip customers are loyal with 87% renewal rates and our customer satisfaction ratings are 98%. For the “expand” part of our strategy, 65% of bookings came from existing customers adding to their deployments, with capabilities such as unified communications, expanded video delivery or Qumu Cloud.

As you know, because we combine both cloud and on-premise technologies into one enterprise solution, we can provide hybrid deployments. Qx isn’t just the best of both worlds, it’s the best of the real world. Large, enterprise customers increasingly need both the flexibility of the cloud with the reliability and security of on-premise solutions. Last quarter, we mentioned the highly successful hybrid deployment with our customer AMD and alluded to another hybrid deal in the works. That new customer – CIT – is now deploying our largest hybrid installation to date for a highly complex use case.

Following on that success, we’re also in the middle of another major deployment for a large financial institution. This installation combines three different video delivery technologies into one Qumu Pathfinder solution. This is the kind of flexibility that true enterprise customers need. They now can support public CDN, peering and multicast delivery all in a seamless, hybrid video network. It’s not just a matter of connectivity. We bring management and optimization across a holistic solution. And Pathfinder is the one, single platform that allows them to accomplish it.

We are successfully transitioning to a more predictable software-as-a-service model, while remaining focused on large organizations – globally – delivering both on-premise, cloud and hybrid video solutions. Qumu’s pipeline of viable, significant sales opportunities remains strong at two times coverage.

However, because the mix of perpetual licenses versus SaaS deals will ultimately determine where we land from a revenue perspective; we think it’s prudent to reduce our guidance to $29.4 to 30.4 million in revenue for the year.

Next quarter, we’ll have our new CFO on board to cover the financials. Today, I will mention a few key numbers and let you refer to the press release for more details or we can discuss in the Q&A at the end of my comments.

Total revenue was $7.6 million for the second [sic] quarter compared to $7.1 million Q3 2016.

• Subscription, maintenance and support revenue for the third quarter 2017 was $5.1 million compared to $5.0 million for the third quarter 2016. The variance in subscription, maintenance and support revenue primarily resulted from growth in the customer base, as well as the timing of customer renewals.

• Gross margin for the third quarter 2017 was 61.6% compared to 59.8% for the third quarter 2016. Gross margin for the nine months ended September 30, 2017 was 62.8% compared to 56.9% for the nine months ended September 30, 2016.

• Total headcount was 120 as of September 30, 2017 compared to 119 as of June 30, 2017 and 152 as of September 30, 2016.

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• Cash and marketable securities were $7.7 million as of September 30, 2017, compared to $9.0 million as of June 30, 2017, reflecting the third quarter operating loss and the impact on cash from changes in working capital.

• As stated in our press release, we have been negotiating with the lender and Hale Capital Partners regarding these covenants and a potential amendment to or waiver of the credit agreement.

• From these negotiations, I believe we have reached an agreement in principle early this morning with Hale Capital Partners for an amendment to the credit agreement. The highlights of the agreement in principle are as follows:

◦ Waiver of the potential October 31, 2017 covenant default we described in our press release

◦ Reduction of the percentage coverage on the cash and eligible accounts receivable covenant from 118% to 100% of outstanding obligations

◦ Elimination of one of the exclusions to eligible accounts receivable – the exclusion relating to large accounts receivable that we described in our earnings release

◦ Reduction in the core bookings covenant to $8 million for all future period

◦ Changing the repayment schedule so that $3 million in principal will be due May 1, 2018

• While I am pleased to have reached this agreement in principle, there still is work left to be done before these terms become binding on us or on Hale.

• No amendment to or waiver of the credit agreement is binding unless and until the parties execute and deliver a written agreement.

• A written agreement, reflecting our agreement in principle, needs to be drafted and reviewed and approved by the parties. We expect that to occur over the next few business days.

• We will report if and when we enter into a written agreement with Hale. If we are not able to enter into a written agreement with Hale for any reason, we will also provide an update to that effect.

• Again, we are pleased to have reached this agreement in principle with our partner Hale Capitial.

Operational Highlights

Now, I’d like to review a few key operational highlights as they relate to our market and product direction.

Qumu remains focused on our two-pronged strategy:

1. Capitalize on our core strength of serving large enterprises with complex, global video needs; and

2. Build new partnerships in the video ecosystem, leveraging our Qx extensible platform.

The first – capitalizing on our core strength of serving large enterprises – requires that we effectively evangelize our strategy in the market. Over the course of 2017, we increased our marketing and our partnership efforts. As a result, customers and prospects are seeing that we’re no longer just a video streaming product provider. We bring a full suite of solutions – Qx – which flexes and scales with their direction. Qx is engaging the imagination of our innovative customers and opening new conversations.

Let me give you an example. Last month, I visited more than a dozen of our customers to discuss their Unified Communications plans. Every one of them had large Skype for Business installations. Skype for Business is replacing traditional video conferencing and phones. Our unique ability to let customers record, manage and broadcast these conversations – at scale – resulted in multiple trial and proof of concept projects that will produce opportunities over the next three quarters.

Our efforts are also catching the attention of the industry. We’re now part of the larger discussion around Social Business, Collaboration and Unified Communications:

• Qumu was Honored Among the Top 20 Collaboration Technology Solution Providers of 2017-along with companies like Cisco, Polycom and Slack

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• We were also named Among the 10 Fastest-Growing Unified Communication Solution Providers of 2017

• And here’s the ranking that I’m especially proud of: We are #1 in Gartner Group’s Peer Insights. These are voluntary, in-depth reviews submitted by our customers. They are rigorously vetted by Gartner. To me, it’s an important validation of our own customer satisfaction scores. It says a lot about Qumu that our committed enterprise customers are willing to go on public record, discussing the quality of our platform and support.

As I said, the second prong of our strategy is building new partnerships leveraging our extensible platform. With Qx, we’ve built the right solution to provide the “digital dexterity” that today’s enterprise requires – an open, services-based architecture. This is what provides extensibility – meaning our products can easily integrate with other systems that large enterprises are implementing – systems like mobile, unified communications, social portals, digital signage and IPTV.

Along those lines, in Q3, we released two new extensions that were developed by one of our partners:

• First we released real-time analytics. This provides viewership data about both live and on-demand video in an intuitive graphical interface. Two large customers have already deployed this feature as part of their enterprise video infrastructure.

• Second, another extension provides a fully integrated IPTV application. This Qumu-certified extension deployed by a large financial institution, allows them to stream news and other market-driving content to thousands of devices over their internal pathfinder network.

Our open, services-based architecture also helps us add Qumu-developed extensions:

• A recent example is our Unified Communications Gateway – This product is already deployed at multiple clients and, as I mentioned, continues to draw considerable interest as customers embrace Skype for Business and other UC solutions.

Large enterprises are faced with immense challenges as the consumerization of the enterprise continues. Every element of that transformation – from social business, to unified communications, to virtual reality – demands more video. They need a solution that will scale, but not just bigger. They need to scale with maximum agility. And our platform – because it is both enterprise-grade and highly extensible – lets them do that. It gives large Enterprises the flexibility they need-to continually move and adapt at their own pace.

In summary,

• In Q3 we saw our Qx strategy take hold in the market, igniting customer interest and acknowledgment from the industry in the form of highly favorable rankings

• We attracted new customers, expanding our base, with the full suite of solutions from on-prem, to cloud and hybrid solutions

• We proved the extensibility of our platform with partner and Qumu-developed product extensions

• And, we maintained the support of our large loyal customers

We are well-positioned in the market as large Enterprises strive to increase what Gartner Group calls their Digital IQ. Video will play a huge role in that transformation and Qumu brings the platform to make it easy and manageable at Enterprise scale.

Now, let’s open up the call for questions.

Q&A

Vern Hanzlik

Thank you again for joining us today. Let us know if you have any questions and have a great day.

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