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 30, 2018
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:

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
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934. o
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. o

Items under Sections 1 and 3 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 30, 2018 disclosing material non-public information regarding its results of operations for the quarter ended September 30, 2018 and hereby furnishes as Exhibit 99.2 statements of Vern Hanzlik, its President and Chief Executive Officer, and David Ristow, its Chief Financial Officer, made on October 31, 2018 at a telephone conference relating to the quarter ended September 30, 2018 results.

ITEM 9.01FINANCIAL STATEMENTS AND EXHIBITS.

Exhibit No.	Description
99.1	Press Release issued on October 30, 2018.
99.2	Statements of Vern Hanzlik, President and Chief Executive Officer, and David Ristow, Chief Financial Officer, at a telephone conference held on October 31, 2018.

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/ David G. Ristow
		David G. Ristow
		Chief Financial Officer
Date: October 31, 2018

EX-99.1

EXHIBIT 99.1

Qumu Announces Third Quarter 2018 Results,

Reports Positive Quarterly Net Income and Reiterates Annual Revenue Guidance

Conference Call Wednesday, October 31, 2018 at 10:00 a.m. ET

Minneapolis, MN – October 30, 2018 – Qumu Corporation (NASDAQ: QUMU) today reported financial results for the third quarter ending September 30, 2018 and reiterated with confidence its 2018 full year revenue guidance. The Company reported net income of $2.4 million for the quarter, which included a $6.5 million gain on the previously announced sale of its investment in BriefCam, Ltd. and reflected improved operating efficiencies resulting from ongoing cost reduction initiatives. The Company also strengthened its balance sheet by paying down its long-term debt by 60%, or $6.0 million, while increasing its cash during the quarter by $3.3 million.

"I’m happy to report positive net income which, along with a strengthened balance sheet and steady improvement in our operating expenses, gives us a solid financial footing for growth,” said Vern Hanzlik, Qumu’s President and CEO. "We remain bullish on the business, due to steadily increasing customer opportunities, increased customer retention of over 90%, plus our expanded footprint in 22 customers. This growing commitment from customers, combined with top leadership rankings by industry analysts tells me Qumu’s strategy is exactly on target with the industry’s direction toward global video solutions based on a distributed computing model."

Third quarter 2018 revenue was $5.7 million, compared to $7.6 million in the third quarter 2017, and net income for the third quarter 2018 was $2.4 million, or $0.25 per diluted share, compared to a net loss of $(2.3) million, or $(0.25) per diluted share, in the third quarter 2017. Third quarter adjusted EBITDA, a non-GAAP measure, was $(801,000) for the third quarter 2018, compared to $(857,000) for the third quarter 2017.

For the nine months ended September 30, 2018, revenue was $18.1 million, compared to $20.9 million last year, and net loss was $(3.7) million, or a loss of $(0.39) per diluted share, compared to $(8.5) million, or a loss of $(0.91) per diluted share, last year. For the nine months ended September 30, 2018, adjusted EBITDA was $(3.6) million, compared to adjusted EBITDA of $(3.8) million last year. The year-over-year revenue comparisons were negatively impacted by approximately $153,000 and $577,000 for the three and nine months ended September 30, 2018, respectively, due to the adoption of the new revenue recognition standard (ASC Topic 606).

Other Financial Highlights

• Cash and cash equivalents totaled $8.5 million as of September 30, 2018, compared to $7.7 million as of December 31, 2017. During the third quarter, the Company used a portion of the $9.6 million in net proceeds from the sale of BriefCam to pay down its long-term debt by $6.0 million and accrued interest by $463,000, while still ending the third quarter with $8.5 million in cash, compared to $5.2 million in cash at June 30, 2018.

• Operating expenses decreased $1.3 million and $2.6 million during the three and nine months ended September 30, 2018, respectively, compared to the 2017 periods, reflecting the impact of the Company's ongoing cost reduction initiatives.

• Software license and appliance revenue was $1.0 million and $1.8 million for the three months ended September 30, 2018 and 2017, respectively, and $4.3 million and $4.0 million for the nine months ended September 30, 2018 and 2017, respectively, with the year-to-date increase attributable to both new license sales and expansion of existing customers.

• Subscription, maintenance and support revenue was $4.1 million and $5.1 million for the three months ended September 30, 2018 and 2017, respectively, and $12.3 million and $15.1 million for the nine months ended September 30, 2018 and 2017, respectively. The year-over-year revenue comparisons were negatively impacted by approximately $297,000 and $740,000 for the three and nine months ended September 30, 2018, respectively, due to the adoption of the new revenue recognition standard (ASC Topic 606). Additionally, the loss of a large customer which was previously announced as lost in the fourth quarter

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2017, negatively impacted the year-over-year revenue comparisons by $858,000 and $2.4 million in the three and nine months ended September 30, 2018, respectively.

• Gross margin for the third quarter 2018 was 62.6%, compared to 61.6% for the third quarter 2017. Gross margin for the nine months ended September 30, 2018 was 63.4%, compared to 62.8% for the nine months ended September 30, 2017.

Given the performance to date and sales pipeline, the Company remains confident in the achievement of its previously issued revenue guidance for the full year 2018. Annual bookings growth is expected to be 20% to 25% in 2018, emphasizing growth in sales of the Qx platform. Revenue for 2018 is expected to be approximately $25 million, which includes an approximately $1.1 million unfavorable revenue impact due to the adoption of the new revenue recognition standard (ASC Topic 606) in 2018, as well as the loss of a large customer in the fourth quarter 2017, representing revenue of approximately $3.2 million annually. Gross margin percentage is expected to be in the mid to high 60s. Adjusted EBITDA for 2018 is expected to be approximately $(3.5) million, which is unchanged from previously issued guidance. The Company expects to achieve positive adjusted EBITDA, a non-GAAP measure, in the fourth quarter 2018. Adjusted EBITDA for 2018 excludes other income (expense) of $5.3 million reflecting the sale of BriefCam, Ltd. and paydown of term debt in the third quarter 2018, the change in fair value of warrant liabilities and net losses on foreign currency transactions, stock-based compensation expense of approximately $1.1 million, amortization of acquired intangible assets of approximately $2.1 million, depreciation expense of approximately $0.5 million, income tax expense of approximately $0.3 million, and interest expense of approximately $1.8 million. Net loss for 2018 is expected to be approximately $4.0 million, which includes the results for the nine months ended September 30, 2018.

Conference Call

The Company has scheduled a conference call and webcast to review its third quarter 2018 results tomorrow, October 31, 2018 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 liabilities, foreign currency gains and losses, the gain on the sale of BriefCam, the loss on extinguishment of debt 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 income (loss), a GAAP measure, to adjusted EBITDA, a non-GAAP measure, for the three and nine months ended September 30, 2018 and 2017.

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, the demand for the Company’s products or software, and the expected tax effects of the Company’s disposition of its investment in BriefCam. The statements made by the Company are based upon

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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, 2017 and other factors set forth in the Company’s filings with the Securities and Exchange Commission.

About Qumu

Qumu is the leading provider of best-in-class tools to create, manage, secure, distribute and measure the success of live and on-demand video for the enterprise. Backed by the most trusted and experienced team in the industry, 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.

Investor Contact:

Dave Ristow

Chief Financial Officer

Qumu Corporation

Dave.Ristow@qumu.com

+1.612.638.9045

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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,
	2018			2017			2018			2017
Revenues:
Software licenses and appliances	$	985		$	1,822		$	4,303		$	3,971
Service	4,668			5,751			13,807			16,967
Total revenues	5,653			7,573			18,110			20,938
Cost of revenues:
Software licenses and appliances	504			916			1,643			1,778
Service	1,611			1,995			4,990			6,003
Total cost of revenues	2,115			2,911			6,633			7,781
Gross profit	3,538			4,662			11,477			13,157
Operating expenses:
Research and development	1,617			1,769			5,159			5,676
Sales and marketing	1,796			2,509			6,388			7,484
General and administrative	1,608			2,083			5,536			6,552
Amortization of purchased intangibles	224			226			680			675
Total operating expenses	5,245			6,587			17,763			20,387
Operating loss	(1,707		)	(1,925		)	(6,286		)	(7,230		)
Other income (expense):
Gain on sale of BriefCam, Ltd.	6,502			—			6,502			—
Loss on extinguishment of debt	(1,189		)	—			(1,189		)	—
Interest expense, net	(262		)	(343		)	(1,616		)	(994		)
Decrease (increase) in value of warrant liability	(401		)	15			(292		)	(52		)
Other, net	(78		)	(166		)	(481		)	(345		)
Total other income (expense), net	4,572			(494		)	2,924			(1,391		)
Income (loss) before income taxes	2,865			(2,419		)	(3,362		)	(8,621		)
Income tax expense (benefit)	469			(110		)	303			(139		)
Net income (loss)	$	2,396		$	(2,309	)	$	(3,665	)	$	(8,482	)
Net income (loss) per share – basic:
Net income (loss) per share – basic	$	0.25		$	(0.25	)	$	(0.39	)	$	(0.91	)
Weighted average shares outstanding – basic	9,559			9,404			9,472			9,335
Net income (loss) per share – diluted:
Net loss per share – diluted	$	0.25		$	(0.25	)	$	(0.39	)	$	(0.91	)
Weighted average shares outstanding – diluted	9,709			9,404			9,472			9,335

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QUMU CORPORATION

Condensed Consolidated Balance Sheets

(unaudited - in thousands)

Assets	September 30, 2018			December 31, 2017
Current assets:
Cash and cash equivalents	$	8,499		$	7,690
Receivables, net	4,150			5,529
Contract assets	156			—
Income taxes receivable	319			156
Prepaid expenses and other current assets	1,932			1,830
Total current assets	15,056			15,205
Property and equipment, net	512			911
Intangible assets, net	4,661			6,295
Goodwill	7,132			7,390
Deferred income taxes, non-current	60			77
Other assets, non-current	925			4,398
Total assets	$	28,346		$	34,276
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	1,841		$	3,878
Accrued compensation	959			1,824
Deferred revenue	9,114			8,923
Deferred rent	47			181
Financing obligations	144			1,047
Warrant liability	3,458			819
Total current liabilities	15,563			16,672
Long-term liabilities:
Deferred revenue, non-current	1,483			141
Income taxes payable, non-current	531			3
Deferred tax liability, non-current	40			153
Deferred rent, non-current	322			507
Term loan and other financing obligations, non-current	3,304			7,608
Other liabilities, non-current	146			—
Total long-term liabilities	5,826			8,412
Total liabilities	21,389			25,084
Stockholders’ equity:
Common stock	95			94
Additional paid-in capital	68,763			68,035
Accumulated deficit	(58,923		)	(56,197		)
Accumulated other comprehensive loss	(2,978		)	(2,740		)
Total stockholders’ equity	6,957			9,192
Total liabilities and stockholders’ equity	$	28,346		$	34,276

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QUMU CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

	Nine Months Ended   September 30,
	2018			2017
Operating activities:
Net loss	$	(3,665	)	$	(8,482	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,924			2,309
Stock-based compensation	767			1,090
Accretion of debt discount and issuance costs	1,194			364
Gain on sale of BriefCam, Ltd.	(6,502		)	—
Loss on debt extinguishment	1,189			—
Loss on lease contract termination	177			—
Change in value of warrant liability	292			52
Deferred income taxes	(99		)	(112		)
Changes in operating assets and liabilities:
Receivables	1,363			1,204
Contract assets	394			—
Income taxes receivable / payable	357			142
Prepaid expenses and other assets	291			1,070
Accounts payable and other accrued liabilities	(2,082		)	563
Accrued compensation	(857		)	(405		)
Deferred revenue	2,283			151
Deferred rent	(121		)	(132		)
Other non-current liabilities	98			—
Net cash used in operating activities	(2,997		)	(2,186		)
Investing activities:
Proceeds from sale of BriefCam, Ltd.	9,678			—
Purchases of property and equipment	(116		)	(22		)
Net cash provided by (used in) investing activities	9,562			(22		)
Financing activities:
Proceeds from term loan and warrant issuance	10,000			—
Principal payments on term loans	(14,000		)	—
Payments for term loan issuance costs	(1,308		)	(125		)
Principal payments on financing obligations	(329		)	(383		)
Common stock repurchases to settle employee withholding liability	(28		)	(11		)
Net cash used in financing activities	(5,665		)	(519		)
Effect of exchange rate changes on cash	(91		)	101
Net increase (decrease) in cash and cash equivalents	809			(2,626		)
Cash and cash equivalents, beginning of period	7,690			10,364
Cash and cash equivalents, end of period	$	8,499		$	7,738

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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,
	2018		2017		2018		2017
Software licenses and appliances	$	985	$	1,822	$	4,303	$	3,971
Service
Subscription, maintenance and support	4,091		5,113		12,251		15,061
Professional services and other	577		638		1,556		1,906
Total service	4,668		5,751		13,807		16,967
Total revenue	$	5,653	$	7,573	$	18,110	$	20,938

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

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2018			2017			2018			2017
Net income (loss)	$	2,396		$	(2,309	)	$	(3,665	)	$	(8,482	)
Interest expense, net	262			343			1,616			994
Income tax expense (benefit)	469			(110		)	303			(139		)
Depreciation and amortization expense:
Depreciation and amortization in cost of revenues	2			6			7			25
Depreciation and amortization in operating expenses	63			227			358			716
Total depreciation and amortization expense	65			233			365			741
Amortization of intangibles included in cost of revenues	288			302			879			893
Amortization of intangibles included in operating expenses	224			226			680			675
Total amortization of intangibles expense	512			528			1,559			1,568
Total depreciation and amortization expense	577			761			1,924			2,309
EBITDA	3,704			(1,315		)	178			(5,318		)
Gain on sale of BriefCam, Ltd.	(6,502		)	—			(6,502		)	—
Loss on extinguishment of debt	1,189			—			1,189			—
Increase (decrease) in fair value of warrant liability	401			(15		)	292			52
Other expense, net	78			166			481			345
Stock-based compensation expense:
Stock-based compensation included in cost of revenues	8			(3		)	26			29
Stock-based compensation included in operating expenses	321			310			741			1,061
Total stock-based compensation expense	329			307			767			1,090
Adjusted EBITDA	$	(801	)	$	(857	)	$	(3,595	)	$	(3,831	)

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EX-99.2

Exhibit 99.2

Qumu Corporation

Third Quarter 2018

Earnings Conference Call

October 31, 2018

Operator

[Introduction]

Dave Ristow

Good morning, everyone. Thank you for joining our third quarter 2018 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.

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.

Now, I’ll turn the call over to Vern Hanzlik, the President and CEO of Qumu.

Vern Hanzlik

Thank you, Dave, and welcome everyone. First, I’d like to touch on some key financial highlights, and then I’ll review our progress against the Strategic Plan.

I’m happy to report that Qumu ended its third quarter with both positive net income of $2.4 million and earnings per share of $0.25 – marking the company’s first quarter of positive net income and EPS since Q3 of 2014. The net income was largely the result of a $6.5 million gain on the sale of our investment in BriefCam Limited, which strengthened Qumu’s balance sheet to $8.5 million in cash – an increase of $3.3 million over the previous quarter after paying down $6 million, or 60%, of our long-term debt.

Revenues were $5.7 million for the quarter, compared to $7.6 million in the third quarter 2017. Adjusted EBITDA was negative $803,000, and gross margins were 63%. In addition, Qumu’s total annualized recurring revenue is approximately $16.5 million for 2018, which is comprised of 44% SaaS revenue and 56% annualized support and maintenance revenue.

We expect a degree of lumpiness in our business given the long sales cycle and our transition from perpetual contracts to software as a service. And for that reason, we are focused on our annual guidance. With this in mind, based on 1) the strength in our sales pipeline, 2) the growing loyalty of our customer base and 3) an estimated year-over-year growth in annual bookings of 20% to 25%, we are reiterating our guidance for the year of approximately $25 million in revenue.

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Given our strengthened balance sheet, year over year bookings growth, and prudent expense management, we remain bullish on the business. Now I would like to take a moment and review several ways Qumu is building strong momentum through the balance of 2018 and into 2019:

1. We are seeing continued growth in customer opportunities and our pipeline remains strong at two-and-a-half times projected sales.

2. We have already closed several deals this quarter.

3. Qumu’s customer renewal rate continues to grow, rising one percent during the quarter to 90.5%. This indicates we are continuing to earn the trust and commitment of the world’s leading organizations.

4. During the quarter we expanded our footprint within 22 customers, beyond our renewal activities.

5. We are continuing to expand our reach with a leveraged sales model, steadily building strong channel relationships with British Telecom, AT&T, Pinnaca, XenTegra, Genesis, and Whitlock.

I’d also like to take a moment and highlight another positive trend in our business, which is the growing number of hybrid deployments being requested by new and existing customers. Until recently, hybrid enterprise video implementations were seen as a transition point between on premise deployments and full, cloud-based environments. But this recent surge in hybrid activity proves that we not only understand the enterprise video market today, but also where it is headed tomorrow.

Hybrid is now the strategic destination for many of our customers. Ultimately these customers are choosing Qumu’s Pathfinder intelligent delivery technology, because Pathfinder is a major component that brings distributed computing to Enterprise video, making video delivery reliable, manageable and scalable.

For example, our partner, Whitlock, brought Qumu a major computer technology client who is migrating its large on prem installation to hybrid, putting their full confidence in Pathfinder as their video delivery technology. In addition, another customer-a major financial services firm-is migrating from Cloud to hybrid, again using Pathfinder as the bonding element and providing peer-to-peer delivery technology across hundreds of branch offices.

Now, I’d like to report on our progress against each of the four pillars of our strategic plan.

Our first Pillar is Sales Execution & New Customer Growth.

Qumu’s marketing team is highly skilled at bringing qualified leads into our pipeline by creating engaging content, and steadily building our brand visibility. This year, we’ve had tremendous success securing top rankings with industry influencers and analysts who have ranked Qumu as an industry leader – citing productinnovation, customer experience, ability to execute and completeness of vision as key factors in their analysis. Between these analyst honors and our market-leading list of Global 2000 customers, it is becoming clear to the entire industry that Qumu absolutely belongs on the list of best-in-class enterprise video solutions.

In addition to analyst honors we also continue to be recognized by the industry as a whole, receiving awards in 2018 for our WebRTC technology, our Bring Your Own Device support, and our employee onboarding solution. And recently, we were named as one of the 50 Companies That Matter Most in Online Video for 2018 by Streaming Media Magazine.

Attendance for our new live webcast series, called The Video Visionaries Series, has also been growing steadily. This series not only showcases our experts and their knowledge, but also demonstrates our product, Qumu Cloud, in action. The most recent educational webcasts we’ve delivered have included

• Choosing the Best Video Distribution Technology for Your Environment

• 5 Simple Steps for Creating High Quality Business Video, and

• Video Captioning Using Artificial Intelligence

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These new programs have helped Qumu build a robust pipeline of sales opportunities, and now our focus is on driving those opportunities to close and improving our ability to predict those sales. To ensure that we are aggressively pursuing every possible opportunity, we are investing in additional sales talent in all regions.

The sales team closed significant deals during the quarter, adding to our stellar customer roster. A couple examples of new customers are Princess Maxima and Amica Mutual Insurance. Customer expansions include Express Scripts/Medco, Kaiser Permanente, Credit Suisse and Boehringer Pharma.

Qumu is also continually expanding its ecosystem of reseller partners, resulting in a record year of growth for Qumu’s channel partner network. This past quarter, we announced new strategic partnership agreements with AVI-SPL Systems, Genesis Integration and Whitlock. These relationships extend our leadership position in both Unified Communications and Hybrid Cloud. And the Whitlock relationship has already yielded the large technology client mentioned earlier.

In addition, existing key partners such as AT&T, Pexip and V-Cube/iStudy are making deeper commitments and working directly with us on lead generation. V-Cube/iStudy, for example, continues to help us grow our customer footprint in Japan.

The Second Pillar in our 2018 Strategy is Customer Success and Retention.

I’ve already mentioned our performance in this area with over 90% customer retention. This is in part due to our reorganization of the sales team earlier this year in which we assigned account managers to all accounts-enhancing our retention and expansion in our customer base.

The Third Pillar in our Strategy is Market-Focused Product Innovation. During the quarter, we made multiple product improvements and two key announcements, building on two of our competitive product strengths – video delivery and extensibility.

Our intelligent video delivery software, Pathfinder, is our secret sauce – providing comprehensive and flexible connectivity inside or outside the firewall. Because our customer environments are highly complex, Pathfinder offers multiple delivery capabilities, including peer-to-peer and third-party content delivery networks or CDNs. And, we recently announced the release of an HTML5 Multicast Extension for our enterprise solution.

Our open platform’s unique extensibility allows our partners to develop integrations and extensions for our platform as well. For example, we just released an integration with CaptionHub’s industry-leading video captioning technology. This integration allows Qumu customers to automate the process of creating highly accurate captions – at broadcast quality – in over 50 languages. Generating captions is a gating factor for companies being able to publish videos across the enterprise, and for our customers it can mean a significant competitive advantage, giving them the ability to instantly share knowledge across the enterprise and accelerate their global speed to market.

Our fourth and final pillar is Strengthening Our Financials

As I mentioned earlier, our balance sheet is significantly stronger now with less debt and an improved cash position. We’ve also continued to improve optics into operational expenses which were $5.2 million for the quarter, a decrease of $1.3 million from Q3 2017. We have not only improved our systems and our processes, but our finance team collaborates directly with the commercial team on a daily basis to initiate new contracts and streamline customer renewals, resulting in improved cash flow.

Now, over to Dave for further financial commentary.

Dave Ristow

Thank you, Vern.

As noted earlier, we ended our third quarter with a positive net income of $2.4 million and positive earnings per share of $0.25. These results included the $6.5 million gain on the previously announced sale of our investment in BriefCam, Ltd. and reflected improved operating efficiencies resulting from ongoing cost reduction initiatives.

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On a year to date basis, our operating loss decreased by $1.0 million on $2.8 million in lower revenues evidencing that our ongoing cost reduction and operational improvement efforts are working.

We finished the quarter with $8.5 million in cash, an increase of $3.3 million over last quarter. This is following the receipt of $9.6 million of net proceeds from the sale of our BriefCam investment from which we paid $6.5 million to pay down our long-term debt and interest payable.

Third quarter 2018 revenue was $5.7 million, compared to $7.6 million in the third quarter 2017.

Qumu’s total annualized recurring revenue is approximately $16.5 million, which is comprised of 44% SaaS revenue and 56% annualized maintenance revenue.

On $1.9 million less revenues, gross margin for the third quarter 2018 was 62.6%, compared to 61.6% for the third quarter 2017. Gross margin for the nine months ended September 30, 2018 was 63.4%, compared to 62.8% for the nine months ended September 30, 2017.

Operating expenses decreased $1.3 million and $2.6 million during the three and nine months ended September 30, 2018, respectively, compared to the 2017 periods, reflecting the impact of our cost reduction initiatives during 2018.

Given the performance to date and sales pipeline, we remain confident in the achievement of our previously issued revenue guidance for the full year 2018. Annual bookings growth is expected to be 20% to 25% in 2018, emphasizing growth in sales of the Qx platform. Revenue for 2018 is expected to be approximately $25 million, which includes an approximately $1.1 million unfavorable revenue impact due to the adoption of the new revenue recognition standard (ASC Topic 606) in 2018, as well as the loss of a large customer in the fourth quarter 2017, representing revenue of approximately $3.2 million annually. Gross margin percentage is expected to be in the mid to high 60s. Adjusted EBITDA for 2018 is expected to be a loss of approximately $(3.5) million, which is unchanged from previously issued guidance. The Company expects to achieve positive adjusted EBITDA, a non-GAAP measure, in the fourth quarter 2018. Adjusted EBITDA for 2018 excludes other income (expense) of $5.3 million reflecting the sale of BriefCam, Ltd. and paydown of term debt in the third quarter 2018, the change in fair value of warrant liabilities, and net losses on foreign currency transactions, stock-based compensation expense of approximately $1.1 million, amortization of acquired intangible assets of approximately $2.1 million, depreciation expense of approximately $0.5 million, income tax expense of approximately $0.3 million, and interest expense of approximately $1.8 million. Net loss for 2018 is expected to be approximately $4.0 million, which includes the results for the nine months ended September 30, 2018.

Now back to Vern.

Vern Hanzlik

Thanks Dave.

Summary

Let me wrap up with a few key points:

• We are bullish on the business and reiterating our confidence as we finish 2018 and look to 2019

• Qumu ended our third quarter with a positive net income and earnings per share and a very strong balance sheet

• Our pipeline and deal activity are robust

• We continue to earn top rankings from industry analysts

• And our Qx strategy is taking hold with new and existing customers

Now let’s open up the call for questions.

Q&A

Vern Hanzlik

Thank you again for joining us today.

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