Rimage Acquired Qumu in Enterprise Video Communications

Rimage Corporation, provider of CD/DVD/Blu-ray Disc publishing systems, has signed a definitive agreement for the acquisition of Qumu, Inc., in enterprise video communications.

Rutberg Holdings, LLC advises Qumu in the acquisition by Rimage.

The acquisition provides Rimage with a presence in the growing video communications market with an established partner, serving 100 Global 1000 customers and generating strong revenue growth. The purchase price totals $52 million, consisting of $39 million in cash and one million shares of Rimage common stock. The transaction is not subject to any regulatory conditions or shareholder approvals and is anticipated to close within 24 hours.

"Qumu is a cornerstone acquisition for Rimage and immediately positions us as a leader in the growing market for video communications and social enterprise applications for business," said Sherman Black, president and chief executive officer of Rimage Corporation. "The Qumu acquisition accelerates Rimage’s strategy to distribute live, on-demand, downloaded and optical media content for a broad range of applications, on any mobile or desktop device. This acquisition significantly expands our market to new enterprise customers and offers opportunities for cross-selling to the installed base of customers of both Rimage and Qumu."

Qumu helps corporations create, manage and securely distribute video and related content and provides analytics on content usage. With an estimated total available market of $2 billion, it serves companies in banking, technology, and telecom, among other industries, as well as universities and government agencies. It sells its products through a direct sales force and through premier distribution partners, including Sony and AT&T.

Qumu’s revenue has increased more than 45% per year over the past three years. In 2010, it generated $10.3 million in revenue and it is on track to achieve approximately $15 million in 2011. Based on current opportunities and expectations, Qumu is expected to generate approximately $21 million in revenue in 2012.

"The Qumu acquisition provides customer and technology synergies with our disc publishing business and virtual publishing initiative," continued Mr. Black. "We will continue to invest in disc publishing to provide our customers with the leading edge solutions they expect from us. The beta testing of our virtual publishing technology, a secure ‘push-based’ delivery platform, continues to proceed well and we remain on track with validating the concept."

With Qumu, Rimage will be able to provide its customers with solutions for all content distribution applications. Qumu allows customers to offer their content across multiple platforms including the desktop, smart phones and tablets. Qumu customers will benefit from Rimage’s virtual publishing technology which will add secure push delivery capabilities to Qumu’s ‘pull-based’ streaming solution. Rimage’s net free cash flow, global footprint and infrastructure will enable Qumu to accelerate its expansion into new markets.

Qumu will be integrated into Rimage. Its operations will remain in San Bruno, California. Ray Hood, president and chief executive officer of Qumu, will remain the leader of the Qumu team and will become a senior vice president of Rimage.

"We are extremely excited to be joining forces with Rimage to more quickly extend Qumu’s unique video communications solution to a much larger market," said Mr. Hood. "We believe the combination of the two companies offers significant opportunities for growth in 2012 and beyond. Our optimism is demonstrated by the desire of our investors to take a portion of the purchase price in Rimage stock."

The Rimage Board of Directors also announced an increase in the cash dividend in the fourth quarter to $0.17 per share. This will be payable on December 15, 2011 to shareholders of record on November 30, 2011. Based on the closing price on Friday, October 7, 2011, this represents a 5.0% dividend yield.

"As a result of the Qumu acquisition, Rimage is positioned to generate double digit top line growth in 2012. Overall, we anticipate cash from operations in 2012 to match the level of cash generated in 2011. Given our expected cash position post-acquisition and our confidence in generating overall growth in 2012, we believe a 70% dividend increase is warranted," Mr. Black concluded.

Financial Outlook
With the acquisition of Qumu, the company now expects 2011 revenues of $86 million to $88 million and earnings per share of $0.42 to $0.45. Excluding fourth quarter Qumu revenue and Qumu transaction and restructuring costs of $2.0 million, both revenue and earnings per share are in line with the financial guidance provided last quarter and at the beginning of 2011.

For 2012, the company expects Qumu annual revenue growth to continue at greater than 40%. It also anticipates that Qumu will contribute slightly to cash flow in 2012. In disc publishing, the company expects continued solid execution and cash generation. Technology substitution and softness in the retail segment will continue to negatively impact 2012 revenues and will only be partially offset by growth in disc publishing solutions and geographic expansion. The company expects disc publishing revenues to decline in the low single digits over this period and to be able to maintain low double digit operating margins.

Overall, Rimage revenues are expected to increase more than 15% in 2012. The company will continue to optimize its expense structure in disc publishing and leverage the Rimage global infrastructure to accelerate the Qumu opportunity.