Oblong Inc (OBLG) 0 Q0 法說會逐字稿

Good afternoon, everyone.

Welcome to the Glowpoint second quarter 2008 conference call.

Before we begin, I want to remind listeners that this call is being webcast live over the internet and that a webcast replay will also be available on the Company's website, www.glowpoint.com following the call.

The call is being hosted by the, Company's CEO, Michael Brandofino and there will be a brief question-and-answer period following the Company's prepared remarks.

I would now like to introduce, Glowpoint's CFO, Ed Heinen, who will review the Safe Harbor information with you now.

Thank you very much.

The statements contained herein, other than historical information, are or may be deemed to be forward-looking statements and involve factors, risks and uncertainties that may cause actual results in future periods to differ materially from such statements.

These factors, risks and uncertainties include market acceptance and availability of new video communication services, rapid technological change affecting demand for our services, competition from other video communication service providers and the availability of sufficient financial resources to enable us to expand our operations, as well as other risks detailed from time-to-time in our filings with the Securities and Exchange Commission.

Today's call and webcast may include nonGAAP financial measures within the meaning of SEC Regulation G.

I will now turn the call over to Mike Brandofino, CEO, of Glowpoint.

Mike?

Thanks, Ed.

Hello, everyone.

I'm Mike Brandofino, CEO, for Glowpoint.

Thank you for joining us today.

In addition to Ed, our CFO, Joe Laezza, our President and COO, will also make some comments today.

Joe has been our COO and was appointed President in June as part of our effort to make sure that our Management team is aligned and focused to capitalize on the growth opportunities being created by telepresence.

Joe's primary focus is on the day-to-day operations as well as driving opportunities with our strategic partners.

As CEO I will be primarily focused on setting the strategic direction for the Company from a technology perspective and establishing new strategic partnership and driving more awareness in the investment community.

In addition to Joe's title-- new title, David Robinson, our General Counsel, has been named EVP of Business Development and will work closely with me seeking out, evaluating, establishing new business relationships.

While the reporting structure has not changed with Joe, Ed and David still reporting to me, we feel that clearly defining the roles in distributing the responsibilities in this way positions the business to realize maximum impact and will allow us to support growth more effectively.

We again delivered strong growth in our core revenue posting approximately a 16% increase for the second quarter of 2008 over last year with overall revenue growing by 11%.

We think it is important to note that this marks seven consecutive quarters of growth in our core revenue, and even with the elimination of approximately $110,000 of low margin noncore revenue streams, we had two consecutive quarters of overall growth.

Growing our core revenue streams consistently was an objective we set for ourselves last year after finally completing all of the clean-up from historical issues.

With the seven quarters of consecutive growth in core revenue combined with a significant increase in gross margin we feel we've established that consistency we were looking for.

We still believe we can accelerate growth and as we discussed on our prior calls that acceleration can come from services driven by telepresence technology and applications.

In the fourth quarter last year, we indicated that we thought it was possible for us to start accelerating growth and potentially growing at around a 30% pace in our core services.

While we have not attained that pace yet, we still feel strongly that our investment in services offerings for telepresence can fuel accelerated growth in the coming quarters.

It took a little longer than expected to complete the contracts with our telepresence VNOC partners and retrofit our infrastructure systems and processes, but we met our stated goal of driving revenue from telepresence with VNOC services for Q2.

A good early indicator that we are going to see growth in telepresence services is that we already have 12 telepresence rooms under management and another dozen or so pending activation.

While closed deals are the best indicator of growth, a strong pipeline of interest is also a validating factor.

Glowpoint continues to reach record levels of pipeline opportunities and over-- approximately 50% of these opportunities are related to VNOC services.

After Ed reviews some of the key financial results, Joe will provide some color on our progress as it relates to VNOC services and then I will close with some insight into Glowpoint's role in this quickly evolving telepresence environment, and exciting new developments as it relates to our telepresence exchange network service, something we call TEN.

Ed can you provide some color on the results we announced today?

Sure, Mike.

Thanks, Mike, and hello to everyone who has joined us on the call today.

I am sure that there are two key issues on everyone's mind so I want to cover them first before I review the overall results from the second quarter.

We signed two major strategic contracts to provide white labeled VNOC support services for telepresence in the last few quarters.

These important contracts forced us to invest in training, equipment and resources in advance of revenue in order to be prepared to support these VNOC services.

Since these contracts were signed after we negotiated the senior secured notes in September 2007, the adjusted EBITDA goals in these notes did not contemplate the need for this VNOC investment.

We informed investors on the last conference call not to use the adjusted EBITDA goals as guidance for future performance.

As anticipated, we did not need the adjusted EBITDA as defined in our senior secured note.

The only impact of this is that we will have a 2% increase in the interest rate on those notes on a going forward basis.

This amounts to approximately $60,000 of additional interest per quarter.

It is important to note that the failure to achieve the adjusted EBITDA does not result in an event of default of the senior secured notes, and while we dislike the fact that we must accrue a higher interest rate, the investment and telepresence is already add--already adding new monthly recurring revenue and is anticipated to be a key contributor to accelerating our growth and improving the overall value of the Company in the long-term.

In our last call we indicated that we would have sufficient cash depending on the level of investment required to support telepresence.

The rate of accounts receivable collections and any tax payments resulting from our work to clean up the historical tax issues with various states.

At June 30th, 2008, we had lower than expected cash of $1 million which had been negatively affected by several factors.

As I indicated, investing in training, equipment and resources was needed to support the contracts with our white label provide-- partners and these expenditures have been funded from existing cash in advance of the revenue flowing.

In addition, we have had to make some tax payments related to our ongoing negotiation with various states.

We have also had turnover in our collections team which contributed to slower collections as evidenced by our accounts receivable increasing by approximately $0.9 million to $3.4 million as the end of the second quarter.

We have been able to focus on collections in July and August and our day sales outstanding statistics are returning towards historical levels with the resulting increases in cash collections in the third quarter.

While our losses from operations continue to narrow and growth margin continues to improve, we must balance our goal of being cash flow positive with the needs to support our future business, such as our VNOC support services for telepresence.

While we have been successful in this balancing act, we feel that to fully realize our potential in the telepresence market we need to have additional working capital.

We believe that without this additional working capital, our growth could be negatively impacted.

With this in mind, we are contemplating raising additional capital hopefully as part of an overall restructuring of the senior secured notes.

We have no timetable for finalizing the terms of or closing of any such transactions and there can be no assurance that we will be successful with these efforts.

As Mike indicated, we continue to show consistent revenue growth in the second quarter of 2008.

Total revenue for the second quarter of 2008 increased 11% to $6.5 million from $5.8 million in the second quarter of 2007 and our core revenue streams increased 15.6% to $5.6 million.

Subscription and related revenue increased 14.2% to $4.3 million.

Revenue from multi-point bridging achieved a new high of $1.1 million which is up 25.7% from the 2007 quarter.

As we discussed on previous calls, we continue to see a decline in our noncore revenue made up primarily of low margin ISDN resale revenue and integration projects which are usually done in support of a larger deal at low or no margin.

While we did have such an integration project in the second quarter for $250,000, noncore revenue decreased 11.2% to $0.9 million from $1.0 million in the year ago period.

You will notice we provided tables in the 10-Q to clearly detail these components in our financial statement to make it easy for investors to see how our revenue streams change from quarter-to-quarter.

Gross margin increased 39.7% to $2.7 million in the second quarter of 2008 from $1.9 million.

Gross margin as a percentage of sales was 41.8% in the second quarter of 2008 compared to 33.2%, an 860 basis point improvement.

Excluding the customer integration transactions, our gross margin percentages is 43.5% in the second quarter of 2008 and 34.5% in the second quarter of 2007.

The margin improvement and increased revenue contributed in helping to decrease the loss from operations by $0.9 million, or 66.9% to $0.5 million in the second quarter of 2008 from $1.4 million in the 2007 quarter.

Our key operating metrics for the first six months ended June 30th, 2008 continue to reflect our solid consistent performance.

Total revenue for the six months ended June 30th, 2008 increased 8.5% to $12.5 million from $11.5 million in the first half of 2007.

Our core revenues grew by 17.6% to $11 million from $9.3 million in the first half of 2007.

Subscription and related revenue increased 16.5% to $8.6 million for the first six months of 2008 from $7.4 million.

And revenue from multi-point bridging achieved a new high of $2.1 million for the first six months of 2008 which is up 19.5% from the year ago period.

Our event and professional service revenue grew 39% for the first six months of 2008 compared with last year due to an increase-- increased event service-- event services and professional service engagement for the customization of our scheduling package for telepresence partners.

Gross margin increased 45.4% to $5.4 million in the first six months of 2008 from $3.7 million for the first six months of 2007.

Gross margin as a percentage of sales was 42.9% in the first six months of 2008 compared to 32.1% in the first six months of 2007.

If you exclude the customer integration transactions, our gross margin is 43.8% in 2008 and 33.3% in 2007.

The gross margin improvement and increased revenue contributed in helping to decrease the loss from operations by $1.6 million or 65.6% to $0.8 million for the first six months of 2008 from $2.4 million in 2007.

These professional service engagements with our telepresence partners have laid the groundwork for provide-- which provides unique features and services and makes Glowpoint a valuable part of each partner's telepresence vision.

Now I would turn it over to Joe who will provide some updates on these relationships and telepresence.

Thanks, Ed.

I'm pleased to join the call today to provide an update on Glowpoint's involvement in this new generation and era of video.

And the exciting opportunity for Glowpoint, and in particular, how telepresence and associated applications fit in.

As part of our growth strategy, we support a number of key strategic markets with services supporting two-way video communications solutions designed to drive video as a mission critical application.

We've spent a lot of time discussing these in the past while-- and while broadcast and banking application revenues continue to grow and remain a focus for us, the most exciting development for our business and the video industry as a whole revolves around telepresence and applications supporting it.

Our strategy and goal is to become the standard and providing managed services for telepresence and maintain an agnostic position supporting solutions from all manufacturers of the different technologies of video.

Within this strategy is the desire to establish ourselves as the service provider of powering solutions and services directly to manufacturers and their channels which include major telecom carriers around the world.

We took a major step toward achieving that goal in the first half of the year with the formal signing of agreements and the initiation of white label also known as branded services for a manufacturer and a global carrier.

We looked to extend this through additional relationships in the coming quarters and have garnered significant attention and awareness on a global basis.

A couple of things we have seen as it relates to telepresence that are important for all stake holders to understand.

First, we have seen what we've been discussing as confusion in the marketplace and customers are now faced with video solutions from new players like Cisco and HP.

This manifests itself in an increase of formal requests for proposals also known as RFPs, RFQs, RFIs and such.

And a growing pipeline but delayed and lengthened sales cycles as customers are taking longer to choose a platform and move forward, which inherently delays the services associated with the choice of technologies.

Another key factor we have seen develop is that telepresence is taking hold and businesses are embracing the technology.

And most importantly video is becoming a mission critical business tool and this is stimulating the need for managed services, options and support of telepresence rooms in most of the opportunities.

These are services that allow lower total cost of ownership, communication outside private environments, connections to public communities amongst the other critical value added services available.

One final important point is the dynamics of Glowpoint's involvement in telepresence support.

The VNOC service revenue will trail the sale of equipment by as much as a quarter or more.

Due to the need for us to wait until the installation of these complex rooms are complete.

We've been asked in the past why are manufacturers claiming to have grown in telepresence sales but Glowpoint growth doesn't match?

The answer is, A, Glowpoint isn't involved in every opportunity.

And B, if we are, there is a lag in time it takes to get the equipment and network installed once the equipment is purchased and has been completed.

Our revenue is service oriented and is monthly recurring in nature once support of telepresence rooms begin.

The great news is that these are generally multi-year deals and once revenue begins, we have the potential to drive additional revenues by attaching other services to these customers as well.

One example of this is monthly support VNOC service of customers existing non-telepresence room base.

We continue to work with our traditional resell-- reseller channel, but these new strategic relationships open up a new range of opportunities and in most cases we were sitting at the table with customers much earlier in the buying decision process.

As a result of this, we have reorganized our sales team to be more closely aligned with our strategic partners and have assigned dedicated business development managers.

Shifting gears and putting my operations hat on for a moment, I'd like to briefly discuss the scalability of the business operation.

Glowpoint is endeavoring upon potential growth at the support of a very large and demanding enterprises.

And as with any growth, it is our responsibility to manage this efficiently.

The ingredients required to achieve this all stem from systems, process and people.

What we have done over the past six months is prepared this business to grow efficiently without having to build it and they will come.

We were able to achieve this by building upon a solid foundation in place and introducing the appropriate process and discipline along with a solid training program that will allow us to grow the operation quickly and reduce learning curve time frames.

The key is to accomplish this while remaining flexible, innovative and responsive to our existing and new customers.

We have a solid reputation in the industry and have built brand equity by providing the highest level of customer satisfaction while adapting and growing the business, and our culture of customer satisfaction will always remain our number one priority.

Thank you very much.

I'll turn it back over to Mike now.

Thanks, Joe.

It seems that you can't go a day without hearing the word telepresence or seeing a reference to video communications.

The investment community is hearing about it from manufacturers, with John Chambers saying recently he wants to see telepresence in the home within 12 months.

Large carriers are announcing they're going to supporting telepresence.

One announced recently they're going to be deploying public telepresence rooms on a global basis.

And high profile customers are going public with their plans to deploy telepresence and leverage video communications as a critical tool.

M&A activity is also garnering attention as BT acquired Wire One.

And just yesterday news hit that [Tamburgy], a major player in the telepresence space, has received interest from a private equity firm to take them over.

All of this validates that video communications is here to stay and there is an expectation that we will continue to see good growth in this space.

With all of this attention on the space, where does Glowpoint fit in?

How do we stay relevant and make sure that we benefit?

To help investors understand how and why Glowpoint remains relevant, we need to remind you that we were way ahead of the industry in thinking about and deploying solutions that we knew would ultimately be required in the support of video on a global scale.

We built a service platform with applications and technology specifically tailored to support two-way video communications as a service.

This platform is proven flexible enough to be adapted to change in the technology, most recently in support of telepresence.

So when Glowpoint is engaged with potential partners and customers we aren't doing a conceptual white board discussion about what we might be able to do, we are providing details of what we have done and have been doing since our initial launch.

We can point to specific examples of how we have supported video as a critical application in high profile accounts.

We can point to the fact that we have customer locations in over 35 countries.

We can point to our consistent growth in revenue.

We can point to our neutral position as it relates to video technology and our support of all manufacturers.

We can point to longevity and diversity of our customers and now we can point to our ability to support any telepresence system.

Validation of our relevance comes in the form of the two agreements we signed to provide white label services.

It also comes with the fact that others are now trying to replicate our service offering.

With competition comes validation and opportunity.

If what Glowpoint offers wasn't a value in the marketplace there would be no one trying to copy what we do.

BT's acquisition of Wire One, Nortel's announcement of managed service offerings, AT&T's announcements regarding managed services for Cisco telepresence, all validate that managed video services are a critical factor in the support and growth of video adoption.

Although with managed VNOC services, the ability to place video calls between businesses and on different networks has created a new sense of urgency in manufacturers and carriers to find the solution.

Some of you may remember the days when the long distance call had to be manually connected because there was no seamless network interface.

International calls were expensive and growing at a much slower pace than domestic calls.

When the carriers figured out how to hide the complexity from customers and automate the cross network calling, international calling volumes increased drastically to the point where we don't think twice about making calls around the world.

Glowpoint is taking a leadership role in making this same capability available to users of telepresence and video communications in general.

Our telepresence exchange network services called TEN leveraged Glowpoint's existing capabilities in the support of non-telepresence video calls between businesses and across different networks and expands these capabilities to support the unique demands of telepresence.

Glowpoint's unique position is a well established managed video service provider that also has extensive network experience, makes us a reliable and neutral player that other network providers can be comfortable paring with in order to facilitate telepresence calls from customers on their network to locations on other networks.

It is our vision that we will ultimately be the meeting place for carriers around the world wishing to participate in the global video dialing plan and have access to the full suite of managed video services we offer.

We have already had discussions with a number of carriers around the world and there is initial interest in becoming part of TEN and letting Glowpoint be the glue that pulls it all together.

The other component of our TEN vision is establishing Glowpoint as the provider to providers which is something we call a carrier enablement program, where Glowpoint helps establish a full suite of video services for a carrier.

This build operate transfer model is a professional service engagement where Glowpoint builds a branded video service environment using our patented technology and applications specifically branded for the carrier.

We install and maintain the infrastructure and connect the carrier's network to the global directory through TEN for a monthly recurring fee.

And if the carrier is interested in transferring operation at some point we would charge a license fee for the use and support of the Glowpoint applications.

This vision is not new.

You may have heard me talk about being the intel in size that relates to video services.

We have built enough brand equity in the video industry to be taken serious.

And we have two key white label relationships already signed which gives us the credibility to build on and add to that success.

The video industry has matured to the point where Glowpoint's value is finally understood and we are the puzzle piece that brings it all together for our partners and customers.

We are proud of what we have accomplished so far and are confident that we have only scratched the surface on what Glowpoint can become.

It's certainly never happens as fast as we want, but we have consistently delivered improvements on all fronts and look to continue that trend in the coming quarters.

Thank you, and we'll open it up for questions.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of [Nathan Pollock].

Please proceed.

To me this was a good news, bad news story.

I believe that you're making substantial progress.

On the other hand it's less than a year since you were raising funds and I think that that has affected the stock price.

I-- what I really see happening now is that with you raising funds again and kind of pushing things into the future, the stock not moving for an extended period of time again.

So I think what I'm asking is, is it worth considering selling the Company if the Company's technology has the value that you're expressing rather than going out and raising funds again?

I understand your point and clearly the intent when we did the deal last year was to have that last.

A couple of things have happened between now and then that kind of drove us to make some investments.

Telepresence was new.

The agreements we have with these new partners represented such an opportunity to increase the overall value of the Company in the long-term that we felt as a Management team it was important to do so.

Given the growth in revenue and the continued growth in revenue, we felt that we could sustain that and if we could have achieved a little faster growth then cash wouldn't have been any kind of an issue.

And realize what we're saying is that we need the working capital to help us accelerate growth.

Right?

So we are very close and if we decided not to invest in the beginning of this year, we probably would have been cash flow positive.

So it really was a factor of what's going to increase the overall value of the Company in the long haul.

If we continued to land telepresence deals, we believe that we may in fact become interesting to some players out there and I believe that all of our investors would like that to happen at a much higher evaluation than it is today.

And the Management team felt that it was important to invest and try and land these deals and grow the revenue and increase the overall valuation so that we aren't settling for what we have today.

Clearly if there's an offer that comes to the table or someone makes an overture to us as a public Company we will entertain those offers and bring it to the Board.

But we don't think it's appropriate at this time to actively go and try and sell the Company because there is way too much opportunity and capability for us to increase the valuation of the Company.

If I could get a follow-up, please.

The-- what do you anticipate being able to do to end up just to get more visibility?

There is almost no value in stock.

It's kind of like if a tree's falling and nobody hears it, is anything happening, the--?

Sure.

Well we actually have been getting visibility although we haven't seen it in the stock.

The attendees on our conference calls have increased significantly over the last three quarters, where as the end of last year we were getting about five-- 15 people on our calls, maybe another 10 on the Web.

The last couple of calls we've had over 45 people on these calls along with another 25 or 30 people on the Web listening in.

And so we -- and these are people that I've talked to that we have gone out and done kind of road shows with and presented the Company and they're following us and looking at what we're doing.

So I think we need to continue to build credibility which is why I thought it was important on today's call that we show the consistent growth in our core.

Show that even though we invested in telepresence that we've already started landing revenue from it when we said we would, which was the second quarter.

So I think it's about getting out there and talking to folks.

The restructuring of our team, by the way, is an answer to that as well.

Having Joe with the full responsibility of day-to-day operations and President and dealing with those things is intended to free me up to spend more time out there speaking and getting in front of investor communities and doing the road shows.

The other thing, though, is from an awareness perspective.

We have been increasingly covered more in articles, news articles, industry-related things, invited to speak, participating in industry events and from a brand recognition perspective within the video space, this increased significantly.

Now with our partners, the two main partners that we're working with, one a manufacturer and one a global carrier, we're being introduced into many, many more opportunities and just that association with these larger companies is also introducing us and getting our name known.

So we are trying on a number of fronts to help that along and the best thing that we can possibly do is continue to grow revenue.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from the line of Harold Meyerson from Merrill Lynch.

Please proceed.

Hi, Harold.

Hi, Mike.

Hi, Joe, how are you?

Hey, Harold, how are you?

Good.

A couple of things.

One, you used to talk a lot about the patents in previous calls and you haven't spoken to those much lately.

Sure.

And also, just a second question.

In terms of financing, I mean I know you don't want to be beholden to anyone, but is there any thought in terms of a strategic partner versus just a public offering?

Sure.

So first let me address the patent stuff.

I guess the reason we haven't talked about it is because there's just a lot of -- there is a lot of activity between us and the patent office as it relates to challenges to some of the things that we filed and responses and then movement forward.

And it's really just kind of a lot of legal stuff back and forth and clarifications.

The nice thing is that I believe almost every patent that we filed has been acted on and it just takes a real long time to make it happen.

So we are still in fact working through that.

Although our most recent patent which was filed the end of '06 may not have been acted on yet.

I have to check into that.

But we do have activity with it.

None of them have been denied to date.

As it relates to strategic investment, absolutely that is something that we would entertain.

And the challenge with that is who that strategic investment comes from and whether or not it precludes us from working with potential other players in the industry.

So for example, if a particular manufacturer decided they wanted to have a strategic investment in Glowpoint, would that preclude us from working with another manufacturer?

So absolutely we'd entertain the conversation and discuss it and it would be a really good thing to do.

But our role as a neutral player has proven to be extremely valuable to date.

And we think that even more opportunities that we're working on down the road would be helped if we were not tied to any one particular manufacturer or carrier or such.

So it is something we will entertain and bring to the Board's attention should it get to that point.

Okay.

(OPERATOR INSTRUCTIONS) There are no further questions.

I would like to turn the call back to Management for closing remarks.

Thank you.

Well thank you everybody for joining and for those listening to the Company, we appreciate you listening to the conference call and following us.

For those investors who have been with us for a long time we appreciate your continued support.

We feel like we've been able to show consistent growth and the goal now is to try and accelerate that.

With that accelerated growth we think will come recognition and hopefully an improved valuation of the Company.

The Management team is totally committed to achieving the highest valuation possible and getting this Company to the point where it is a very well-known within the industry and hopefully on Wall Street as well.

Thank you for attending.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.