Oblong Inc (OBLG) 2008 Q3 法說會逐字稿

Good afternoon, everyone.

Welcome to the Glowpoint third quarter 2008 conference call.

Before we begin, I want to remind listeners that this call is 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 session following the Company's prepared remarks.

I will now like to introduce Glowpoint 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 communications services, rapid technological change affecting demand for our services, competition from other video communications 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 non-GAAP 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, thank you for joining us today.

With me today are Ed, our CFO; and Joe Laezza, our President and COO.

Ed will provide a review of our financials for Q3, and Joe will provide an up indicate on some of our partnerships and operational activities.

Once we conclude our prepared comments, we will open the call for questions.

Considering the current global market conditions, we feel it is best to start our call today discussing the economy and its current and potential impact on our industry.

The global economy has entered unchartered territory and obviously there are challenges on a global basis.

When these economic conditions are combined with the ever-increasing awareness of environmental responsibility, the case for using video communications services become more compelling with each passing day.

All responsible businesses are focusing on what will help them weather the economic storm.

This usually takes the form of cost-cutting and other precautionary measures to drive efficiencies across all organizations.

Often video communications becomes part of the solution in these cost-cutting efforts.

Glowpoint is firmly positioned in the middle of the video communications landscape and offers a suite of managed services tailored towards helping customers leverage their investment in telepresence and high definition video communications in support of these cost-cutting measures.

Telepresence is being driven by industry Giants like Cisco, Hewlett-Packard and Polycom as a way to enable people to communicate and leverage video for many business purposes well beyond simple meetings beyond corporate conference rooms.

As the technology becomes more sophisticated, it is more complex to support which creates a positive situation for Glowpoint.

We're uniquely positioned to manage and support all manner of video communications equipment and applications.

Our longstanding vision of becoming the underlying provider to the providers is becoming a reality as we brand our services for other providers seeking to capitalize on the demands of video services.

Our relationship with Polycom providing a branded version of telepresence and managed services which they are offering to their customers is a prime example along with another key partnership providing managed services for Cisco telepresence.

The focus on telepresence by key manufacturers and telecom carriers drove Glowpoint to establish its position in the new generation of video communications, and we took the initiative earlier this year to lay the ground work for our involvement in telepresence opportunities.

Over the last few investor calls we provided a description of the investments we made along the scope of the opportunities we could be involved in and the timeframe we believed it would begin producing results.

We also expressed our belief that telepresence VNOC services would be a catalyst for future growth.

It is against this backdrop that we entered the third quarter of 2008 with the strongest sales opportunity pipeline in our Company's history.

We completed the third quarter closing a record amounted of new business at $6.5 million in contract value higher than any other quarter in the Company's history.

This equates to over $350,000 in monthly recurring revenue contracts signed in July, August and September.

Our pipeline currently remains strong, and we see continued interest in our solutions as new opportunities enter the pipeline for future business.

As pleased as we are with the recent new wins we wins we're cognizant of the worsening economic conditions and realize no business is immune to its effects.

While we see increased interest for our services in some sectors, others have been hard hit, especially the financial and real estate segments.

Whe're downsizing has resulted in some of our customers closing locations and putting any expansion projects on hold during this time.

We had one of our larger multi-point bridging customers cease doing business impacting the growth in multi-point conferencing revenue coupled with a particularly slow season -- summer season for bridging services.

However, in comparison to other communication service providers, our churn still remains low at approximately $12,000 per month or 1% of our monthly recurring.

In spite of this new adds continue to exceed churn, and we continue grow the base of monthly recurring business.

We believe there are a number of factors that will help us weather these tough economic conditions.

As mentioned, video communications can be part of the solution for businesses seeking efficiencies in cost cutting measures.

This can position the video industry to sustain itself through difficult economic conditions.

Tough economic conditions only heighten a Company's need to expand to new markets and video communications is actually one of the tools companies can use to extend their capabilities a global basis.

Thus expanding our pool of opportunities beyond the U.S.

Finally, we do not have a single customer who represents more than 5% of our revenues which means we were diversified across many different customers protecting us to some degree from a loss of a single customer having a material impact on the business.

To date we are fortunate enough and pleased to see that even with the current downturn in the economy Glowpoint posted its eighth consecutive quarter of positive growth in subscription revenue.

Recent contract wins in the third quarter far outweigh current churn and should result in continued subscription revenue growth through the remainder of the year.

While we cannot predict the impact the economy will have on future growth, we feel that we are doing all we can to prepare for and position ourselves to minimize the impact on our business.

Now I will turn it over to Joe who will provide updates on our partnerships and VNOC services which play a key roll in our strategy to position Glowpoint for continued growth.

Thanks, Mike.

One of the greatest changes our industry has encountered is that video is becoming mission-critical to businesses and no longer just the nice to have.

From businesses seeking to drive cost savings through travel reduction and efficiencies in productivity, to those seeking to demonstrate environmental responsibility, it seems that video is being adopted at a faster pace than it has in the past.

One of the most exciting developments for us is the CD industry recognizing that managed services in general and Glowpoint services in particular are a critical element to achieving wide adoption of video communications.

We have begun to establish ourselves at the global video interconnection point linking together islands of video across third party private networks, protocols and devices.

Glowpoint services provide users with a consistent experience regardless of how or from where they are connecting.

The fact that our services, technologies, and skills are being leveraged by both end-users and by our strategic partners as part of their overall video offerings is truly rewarding.

In addition to supporting some of the largest enterprises in the world, Glowpoint's technology and expertise is a key component in recently announced public room environments as well as interexchange services that are being utilized by global carriers to support business to business video communications.

The opportunities for Glowpoint have been growing rapidly, and the numbers of telepresence rooms and VNOC engagements continue to accelerate.

The trajectory and growth of our VNOC services is off to a great start.

At the end of June we had contracts in place to support approximately 20 rooms and monthly recurring revenue of approximately 25,000 per month.

In just three months from the end of June to the end of September, this has grown to over 80 telepresence rooms and over 150 HD rooms with monthly recurring expected to drive over 300,000 related to VNOC services.

While we've been able to attract a global clientele over the years, one of our key aspects of recent engagements is the recognition and confidence we are receiving from even larger, more high profile accounts that require comprehensive, secure and robust services.

We now have telepresence rooms actively under management in the United States, India, Switzerland, France, and the United Kingdom with locations scheduled to be activated in more than 25 countries globally.

Especially during this challenging economic climate, it is imperative for Glowpoint to secure as many opportunities as possible.

This is where the true value of our strategic relationships come to light.

Historically our resale or distribution channels were comprised of individual resellers of the various video products in the industry.

In 2007 that reseller channel represented about 40% of our closed contracts.

The challenge currently facing these channels is that the manufacturers are becoming more involved in driving opportunities, and then select the distribution partner once the deal is done.

This would be too late for Glowpoint to be involved as the service and network decisions are usually made earlier on in the sales cycle.

By partnering directly with the manufacturers, large integrators and carriers, we are now involved at an earlier point in the sales process.

As a result, we are being introduced into accounts that we could not have accessed on our own or through our traditional channel partners.

Our go to market strategy now includes the traditional video resellers, Cisco integrators, video equipment manufacturers and carriers.

The result of this strategy has been rewarding thus far, and year-to-date in 2008 over 72% of our closed contracts come from this distribution channel with over 60% of our existing sales pipeline made up of opportunities brought to us by these partners.

From an operational perspective, we have been faced with the challenge of efficiently scaling our business to support telepresence in expanded services on a global basis, all while in the process of fulfilling service orders from signed contracts.

We invested in infrastructure equipment to support the new technology systems and operation staff to expand our operation to 24 by 7 and support the high volume of activity related to some large deals signed in Q3.

We anticipate that these investments and increasing operating costs will be leveraged and distributed as we continue to add customers utilizing our VNOC services.

Another very exciting development for us has been the increased interest in business to business video communications and the realization by both businesses and manufacturers that there must be a means to accommodate high quality video communications between companies across disparate networks.

Glowpoint announced the telepresence interexchange network services, T-E-N or TEN for short to address these demands.

We have been working on some market research with our strategic partners to determine the interest and demand for TEN services by presenting the services and road map concepts with customers prospects, global service corporations and telecom carriers around the world, and the feedback has been very positive and validates our relief that the TEN services are required to help achieve the goals of all stakeholders and consumers in the video industry.

We will be spending time on TEN product and service development in the coming quarters and expect this to be one of the focal points for our future service offerings.

Mike will provide some more details relative to TEN later on.

Right now I will turn it over to Ed who will discuss our Q3 financial results.

Thanks.

Thanks, Joe.

Hello to everyone who joined us on the call today.

As we discussed results through the third quarter, I want to remind everyone about the components of our core revenue stream.

This is revenue derived from products and services that meet our strategic -- our overall strategic goal from a growth, margin, and core competency perspective.

We believe that these products and services offer the greatest prospects for high margin sales and growth and therefore our sales and marketing efforts are predominantly focused on promoting them.

Services that make up our core revenue are subscription related services which include managed network services, VNOC services, multi-point bridging, and events and professional services.

We're focusing on these because they are in line with our corporate strategy and accordingly meet our margin contribution requirements.

Non-core revenues include our ISDN resale business and the integration projects which include integrating various hardware components or procuring hardware components for our customers which we do from time to time in support of some high profile customers.

Our concentration to core revenue streams has again generated continued, consistent, year-over-year double-digit growth in the third quarter of 2008 with subscription related revenue increasing 11.8% to $4.3 million over 2007.

Revenue from multi-point bridging came in at $0.9 million which is up 15.1% from the year ago quarter but down sequentially 15.2% from the second quarter of 2008 primarily due to the unusual impact of summer -- excuse me, the usual impact of summer seasonality as well as the impact of the difficult economic environment which saw some of our customers downsized.

Our event and professional services revenue which does not have a consistent revenue pattern because of the event driven nature of the business decreased 25.3% to $0.2 million from $0.3 million 2007.

Overall revenue was impacted by the expected and intended decline of our low margin ISDN resale revenue and the fact that we had less integration project revenue in the third quarter of 2008 from the prior year.

Total non-core revenue decreased 27.4% to $0.7 million to $0.9 million in 2007.

Overall combined revenue totals for the third quarter ended September 2008 increased 4.5% to $6.1 million from $5.8 million in 2007.

While the decrease in non-core revenue which includes the ISDN resale business impacts our overall revenue growth, the elimination of its lower gross margins had the desired positive effect on our overall gross margin.

We have shown continuous improvements over the last two years and continue to generate over 40% gross margins.

Gross profit increased 30.2% to $2.4 million in the third quarter of 2008 from $1.9 million in 2007.

Gross margin as a percentage of sales was 42-point -- 40.2% in the third quarter of 2008 compared to 32.2% in 2007, an 800 basis points improvement.

A combination of higher margin subscription and bridging revenue, fewer low margin integration projects, and a reduction in depreciation and amortization which was partially offset by increased staff and related salaries, benefits, and other costs related to the expansion of our services resulted in a 7.7% decrease in costs of revenue which led to our gross profit margin improvement compared to 2007.

The combined margin improvement and revenue increase contributed in reducing the loss from operations by $0.24 million or 27.1% to $0.64 million in the third quarter of 2008 from $0.88 million in 2007.

Our key operating metrics for the nine months ended September 2008 continue to reflect solid and consistent performance.

Total revenue for the nine months ended September 2008 increased 7.2% to $18.6 million from $17.3 million in 2007.

The slower single-digit growth in the quarter is primarily due to a 29.6% decline in non-core revenue.

It also reflects the impact of summer seasonality on bridging and difficult economic environment that has impacted some customers, as I mentioned earlier.

Subscription and related revenue increased 13.8% to $12.9 million for the first nine months of 2008 from $11.4 million in 2007.

Revenue from multi-point bridging increased to $2.9 million which is up 18.1% from 2007.

Our event and professional services grew revenue 33.7% for the nine months of 2008 compared with last year as a result of new professional services related to the program, white labeling and events.

Gross margin increased 40.3% to $7.8 million in the first nine months of 2008 from $5.6 million in 2007.

Gross margin as a percentage of sales was 42% in the first nine months of 2008 compared to 32.1% in 2007, a 990 basis points improvement.

The increased revenue, decrease in cost of goods sold and margin improvement contributed in reducing the loss from operations in the first nine months of 2008 by $1.8 million or 54.4% to $1.5 million from $3.3 million in 2007.

Relative to our existing senior secured notes as anticipated we did not meet the minimum adjusted EBITDA as defined in the terms.

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.

It is important to note that this does not result in an event of default of the senior secured notes.

The primary reason for this is driven by our investments in service offerings.

As previously mentioned, these investments are already adding new monthly recurring revenue and are anticipated to be key contributors to accelerating our growth.

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

The rate of accounts receivable collection and any tax payments resulting from our work to clean up the historical tax issues in various states, we have been effective in managing our cash during the third quarter and our cash position increased $0.7 million from the end of the second quarter to just over $1.7 million as of September 30.

Finally, we have been engaged in discussions with the holders of the existing senior secured notes to explore terms for the extension of the maturity date beyond March 2009 and/or the conversion of the senior secured notes into a new equity security.

In conjunction with these discussions, we have been exploring and evaluating our options to raise additional capital.

There can be no assurances, however, that we will be able to raise additional capital as needed or upon acceptable terms nor any assurances that we would be able to renegotiate the terms and maturity dates of the senior secured notes.

I will now pass it back to Mike who will provide final remarks before opening the call for questions.

Thanks, Ed.

To reiterate on my opening comments along with Joe's and Ed's discussions, we believe the introduction of HD and telepresence along with a host of factors including globalization of businesses, a global economic downturn, and global warming is creating a positive environment for increased adoption of video communications.

With video communications becoming a mission-critical tool, business is demanding services that make using video communications easier and more reliable.

In a recent survey done by Industry Analyst, over 70% of businesses interested in telepresence said they want to use it to communicate to partners, vendors and customers.

That's where TEN comes in.

TEN, or telepresence interexchange network services is a suite of services targeted at addressing these demands for interbusiness and internetwork connectivity.

TEN combines secure high quality network connectivity, video service applications, and VNOC services to create a video service fabric that any company or network carrier can connected to.

The only way to describe this is compare to it the evolution of voice communications.

When you buy a phone system for your company, you automatically order connectivity to a voice service fabric, you do this because you need phone numbers, long distance, and the ability to get off your network, particularly if you're using IP communications for internal calling.

You would design and size the connection based on the number of simultaneous phone calls you wish to make or receive outside of your business.

Once you are connected, you have access to all the voice services available and to virtually anyone in the world regardless of what network they're on.

Just the way you dial 9 to dial out as opposed to just someone's extension.

TEN provides this same concept for video.

When you invest in video and telepresence you should automatically connect to a video service fabric.

TEN is the only video service fabric that can provide you with real phone numbers, global dialing plan, gateway and interoperability services and access to tens of thousands of video systems already deployed around the world whether they're on IP or legacy ISDN.

It doesn't matter if you use Polycom, Tamborg or Cisco.

TEN is designed to support all telepresence and non-telepresence video technologies.

Some may think, boy, this TEN sounds very similar to what Glowpoint was providing all along, and you would be correct in thinking so.

TEN is really just an expanded Glowpoint with enhanced capability specifically for the unique requirements of the new generation of HD and telepresence technologies.

Glowpoint's focus since its inception has been exclusively providing video services and our unique position as the only neutral player in the industry makes us the perfect solution for enterprises to connect their video infrastructure to the rest of the world.

TEN is the next generation of Glowpoint, a Glowpoint 2.0 if you will.

We are excited about the initial feedback from all providers and consumers in the industry who all recognize the benefits of a global community of video communications users.

They understand that the more companies connected through TEN the more we can drive adoption and standards and provide businesses with a high return on investment in their video technology and overall lower total cost of ownership.

Our ability to remain relevant and capitalize on emerging trends has allowed us to quickly adapt to the new demands of telepresence.

TEN is merely what we've been doing all along only now the rest of the video industry realizes the critical need for our services in supporting its future.

This is our core competency, and Glowpoint is in a pivotal position to deliver the support and be the connecting point for a global video community.

We aren't the only ones who think so.

Recently on a technology website called Seeking Alpha in an article written about Cisco, the author suggested that Glowpoint's TEN could be the glue to hold the telepresence market together and suggested further that TEN could be a tipping point for the compatibility issues inherent in telepresence technology.

Telepresence VNOC wins during the third quarter validate our strong standing in the video industry and support our belief that telepresence in HD are catalysts for growth.

These contract wins and the focus telepresence has put on Glowpoint have provided the platform for showcasing what Glowpoint has built and the value of our services to the manufacturers, global service corporations, businesses and partners.

Glowpoint the Company and the service have proven to be resilient and flexible in support of the next generation of video communications.

We look forward to the coming quarters as we continue to improve our business metrics, establish new strategic relationships and continue to enable a global community where video communications can become part of every day life.

Thank you.

Moderator, can you open up for questions, please?

Your first question will come from Elliott Gold with TeleSpan.

Please proceed.

Thank you.

Good afternoon, everybody.

Hi, Elliott.

Hi, Mike, how are you.

All right.

I'm sorry, I came on a little late, and I missed some of the numbers.

I have one thing I do want to find out, and then I will ask the other ones and if need be we can talk about them offline.

You mentioned in your release over 40 telepresence rooms connected now, and then you just said a moment ago 150 HD rooms if I heard you correctly.

Actually we have over 80 under contract and 150 HD rooms under contract, some of which are on, some aren't yet.

They're being activated.

Okay.

Do you ever talk about the total base, the total number of locations under contract?

We're specifically talking about VNOC in those numbers.

Okay.

So total on Glowpoint what we have said is we have customers in over 1,200 cities and 37 countries that equates to about 5,000 video end points or so connected to Glowpoint.

Okay.

That's good.

The other question and again I can get this offline or via e-mail.

You were talking about quarter to quarter, and you talked about multi-point being 0.9 million versus -- actually I did not get the Q3 '07, and I missed the subscription.

The 0.9 million in the third quarter of 2008 versus 0.8 million in 2007.

It was an increase of 15.1%, but sequentially from the second quarter to the third quarter it went down by approximately 15%.

Again, due to seasonality.

Right.

We have normal seasonality every summer.

We talked about this on our conference calls all the time.

We were -- it was a little bit more drastic this year as some customers have downsized and therefore their resulting usage would go down as well.

Here is what I will do.

Some of these questions will take too much time because there will be all three quarters sequential and so forth, so I will get back in the queue, and I will send the questions via e-mail.

Great.

Thank you.

Your next question will come from the line of Jack Gilbert, private investor.

Please proceed.

Mike.

Hey, Jack.

Are we going to be cash flow positive this quarter, ending?

No, we will not.

Our goal has been to get there as soon as possible, but some of the investments that we have made based on signed contracts, it is not a build it and they will come, we have signed contracts that we're committed to supporting for 24/7, for example, having the infrastructure in place to support, so since we don't have a kind of a line of credit or the ability to do equipment on leases, we funded that out of existing cash.

Excluding that, would we have been or will we be?

Also, Jack, one other thing.

The fourth quarter when we look at it, with Thanksgiving and the holidays, its, it has always been seasonality has been impacting us in that quarter, so that is--.

From a bridging perspective, but, yes, so would we have been cash flow positive if we didn't invest in telepresence?

It would be more likely than not that we would have been because we have invested to get 24/7.

We've hired new resources, we've invested in equipment.

The fact that we've been able to manage through all of these months and quarters, when we announced the end of the second quarter we had about $900,000 in cash or $1 million in cash.

We have been able to manage to do that through good management of AR and AP, but that shows you that we're relatively close, and we've just need to do make these investments, and the fact that we closed over $350,000 in monthly recurring that's not on yet, and some of it is, but it's coming on, tells you that that investment was worth it.

As that revenue comes on, and we distribute some of these costs across those customers and bring on new business, business didn't stop after the third quarter.

We of course are adding new business in the fourth quarter.

We feel pretty good about the growth as we move forward, at least net of churn and as long as the economic conditions don't cause us any further grief.

Because you brought up the, about changing to the preferred and raising new money and there is nobody -- no shareholder that wants to be any more diluted than we've already been.

I understand that.

Getting cash flow positive and being cash flow positive gives us a lot more leverage to have our stock price up before we do any financing.

I understand the concern.

We said on our last call that we were trying to have discussions related to the notes with March '09 in our mind quickly approaching.

Our concern is that we try and get those conversations under way and take care of those as quickly as we possibly can.

Okay.

Thank you.

Okay.

Your next question will come from the line of [Jim Buke] with W M.

Please proceed.

Hey, Jim.

Hey, Mike, how are you?

All right.

A couple questions.

Coming into '08, we are looking at a target or goal of 30% core revenue growth.

Correct, what we thought we could do.

And it doesn't appear we're anywhere near those levels.

Can you sort of touch on why we're not there, why you see us getting there, and when we're going to get there?

Sure.

Definitely the comments we made were based on our feelings going into this year, and based on the progress we made last year from a sales perspective.

What I guess, I mentioned this on prior calls, what we experienced in the beginning of the year, and if you listen to Bob Hagerty from Polycom or even if you listen to folks from Tamborg, you would hear that they said in the beginning of the year opportunities increased and we had the largest pipeline buildup over the first half of the year, in fact our pipeline doubled from the beginning of the year in January to June through the first two quarters.

It doubled.

Which means that the opportunities were there for that kind of growth, but people seem to be confused by the entrance of Cisco into the space, taking longer make decisions, and I think if you look at the third quarter results, a lot of those decisions were made in the third quarter, and we landed a lot of business.

If you started adding those numbers up from a monthly recurring basis perspective and those things come on, again, excluding churn, we have, to churn is something that we try to control but can't completely.

You will see that those percentages I think when we look at the monthly recurring when all of this comes on, year-over-year December to December it is going to be a much higher percentage than we've seen throughout the year.

Now, that doesn't help us in in year revenue and that's another factor that I think we under estimated is the time it takes to get some of these VNOC services on board and billable, so clearly in a monthly recurring business model the faster you get those services on and billable the more impact it has in year, and we were just definitely off on how long it would take to get some of those services on board.

We signed a couple of these deals in the summer that are still not fully billable because of the process it takes to install the rooms, not on our side, remember, we don't sell the equipment, but we can't support them.

We can't provide services unless they're installed.

Absolutely we believe that we could have been there.

The pipeline supported that thought.

The sales cycle just did not come out to be the way we wanted it to be.

I think the important thing is though that we continue to grow, and we continue to improve on our core revenue metrics, quarter to quarter, month to month, and the other impact of course that we warned everybody about is top line revenue was going to be impacted by obviously declining of the non-core revenue which we saw hit us during the summer along with the seasonality with the bridging, so do we still think that there is significant growth available?

Yes.

Barring some complete catastrophe in the economic markets where even video gets impacted.

We are continuing to see growth and look to VNOC services to really help us do that.

Okay.

Second, can you comment -- you mentioned that things continue, the momentum continued into Q4, we're roughly 45 days into Q4.

Can you comment on any success stories or wins you have had to date in this current quarter?

We can't other than to say that we have closed business.

I would, not at the pace that we did during the summer, and what we're seeing is the pipeline continuing to have opportunities in it but people taking longer to make decisions, so I can't predict what the new sales will be in the fourth quarter.

It probably won't be as high as the summer was.

It normally, around the holiday season we normally have that happen anyway, but we are closing deals at a decent rate.

It is just not at the pace it was during the summer.

Okay.

Earlier this year, actually the started of the year you had an announcement on a couple of people that joined the Company in various capacities.

One lady joined from Verizon, and I was curious what role specifically are they playing?

Are they out bringing in business directly or what exactly are they doing right now?

Sure.

Well, two of them are gone because they didn't live up to expectations.

They've since been replaced by other sales folks, but as Joe mentioned, and we really took -- we tried to take a lot of time to explain our distribution model because we thought it was important for people to understand how we get new opportunities and given the size of our Company and the small salesforce what we are doing to try and get into leads, and most of our sales organization acts as an overly to our partners, so if you look at where we were prior to, at the end of '07 let's say, about 40% of our sales came to our channel, and our channel representative, let's say 200 feet on the street and our sales people managed those folks.

Now with some of the strategic relationships that we have and the distribution channel that we've added, we probably have over 1,000 feet on the street that are selling or at least able to talk about Glowpoint, and so that particular person you talked about from Verizon, she manages one of our key strategic relationships and is involved in overlaying their salesforce and driving opportunities.

As we mentioned, as Joe mentioned again, 70% of the deals closed to date are through our distribution channel and 60% of the opportunities in the pipeline which is still the largest it has ever been for Glowpoint is a result of these channels, so she is strategically working with one of our main partners.

Last question.

You mentioned Polycom and what's going on in that front, and you mentioned specifically a Cisco.

Telepresence, a company that deals on the Cisco Telepresence front, can you give us any color in terms of what's happening with that specific partner?

They are -- they happen to be the one that mentioned that's been involved in the room rentals.

They actually have announced that they're going to be deploying over 100 rooms over 2009.

Glowpoint already supports the rooms that they have in place.

I don't know how many there are, about six.

Public rooms.

Yes, about six public rooms right now, India, the U.S., we support them, and their website, the e-commerce engine, the scheduling engine is also Glowpoints, so we are the underlying service for them and that relationship is going well, and really they're ramping up themselves.

They're a network company and are just getting familiar with video communications and telepresence themselves, so we've been helping educate the salesforce.

We have a person assigned to them as well as an overlay for the salesforce working on opportunities, and clearly a number of deals they're involved with are in our pipeline.

Okay.

I lied.

One last question.

When do you anticipate being cash flow positive?

We're shooting for as soon as we possibly can.

We know that the pool is drying up as far as people interested in investing in businesses like ours, so we're focusing our efforts into getting there as soon as possible.

We're going through our budget cycles right now and nothing is sacred as far as making sure that we get there.

I am not going to give a predictions of when, but again as I said, onto a prior caller we ended the quarter last year, the second quarter with only 900,000 to $1 million in cash.

We've increased that cash not through cash flow positive but through better cash management, and so being able to do that and not having people shut us off means that we're actually managing our cash effectively, collecting effectively, and are pretty darn close, so our goal is just to get there as fast as we can.

Excellent.

Thanks, Mike.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of [Meg Kowalke] with Technology Market.

Please proceed.

Yes.

I am just curious what specific marketing efforts Glowpoint is currently engaged in to drive revenue growth for telepresence, VNOC, and also for TEN services?

Good questions.

We haven't had a huge budget for those type of marketing things, so where we spend our effort is primarily with our partners, so if our partners are going to do customer showcases or shows, we will support our customers in that effort.

Marketing and training materials for our partners and educating them on our services, we've been doing a little bit of market research on TEN ourselves and with the strategic partner where we're reaching out directly to carriers and customers who already are customers of ours or partners of ours and from a carrier perspective carriers around the world to get their feedback on it.

The goal is that we will be getting involved in putting out some white papers, some webinars, and trying to get people aware of the capabilities and services related to TEN, but I would say a majority of our money is spent on education at this point of our partners.

Okay.

Makes sense.

Thanks.

There are no further questions, pardon the interruption, Jim Burke, with W.N.

has a follow-up question.

Please proceed.

Hi, Jim.

Mike, just a follow-up.

On the competitive front, what are you seeing in the marketplace?

Good question.

There are competitors creeping up as far as it relates to VNOC telepresence services, Nortel announced that they're supporting Polycom and Tamborg equipment, a company York Telecom, BT Conferencing of course, which used to be Wire One has always been a competitor of ours, and EasyNet I think is another one that's announced they're supporting services for Polycom.

Now, the difference, though, is that they're supporting it on their own.

They sell equipment, and they're selling the service with the equipment that they sell.

Our relationship with Polycom is such we're providing a branded service so when Polycom is working with a partner that can't offer a service they sell a Polycom version which is us, so there are some competitors, they're not neutral.

That's why we harp on the fact that we're neutral.

We don't sell equipment which means that there are players out there that sell equipment that need to compete against Nortel and Wire One that come to us, they turn to us to provide those services, so I would say there is about five competitors out there right now as it relates to VNOC services that are also selling equipment, and we're the only one that doesn't sell equipment at the current so we're a neutral player but there are also a number of folks that had been competitors before that are now we are providing services for.

There is a reseller that used to have their own service, network service competing with Glowpoint.

They since had us brand Glowpoint for them.

We have some big AV integrators that are looking for Glowpoint to brand our services for them so they can compete with some of those other folks.

I would say about five folks right now that are competing on the VNOC services side.

Do any of them, specifically Nortel appear to have greater momentum in the space that you can see?

No.

I believe that we have the most number of rooms under contract, telepresence rooms based on our kind of knowledge of the industry.

Most of these other folks can count on the number of months that they support video at all from a services perspective other than Wire One, I guess.

So I would say the one with the most momentum is BT Wire One or BT Conferencing because they have been selling a lot of Cisco gear.

They're heavily into Cisco, not so much into Polycom.

I believe we're probably the largest Polycom, supporter of the Polycom infrastructure out there, so I don't think anybody has any momentum, and it is going to be interesting to watch I am sure you guys are all aware of what's happening to Nortel.

Is this going to be something Nortel continues to support with all of their challenges only time will tell.

We feel that we've got an edge at least as it relates to experiences for new services and currently the number of rooms on the contract.

Speaking of Polycom, awhile ago and this goes back quite a while ago they were out in the market, putting out a bid if you will for supporting their network internally.

Did they ever choose a partner with that?

From a network perspective, I don't know if they publicly announced it, but they did.

We know the network that is currently being support, and the reason why -- one of the reasons why Glowpoint wasn't in that bid process is they were looking for a converged network solution.

It is not dedicated just for video.

So that network as far as we know is still in place.

However, with our TEN environment and our close relationship with Polycom we're very much involved in helping Polycom support their infrastructure and their demos and their telepresence business to business model.

In fact, we are connected through that network from our offices to Polycoms and can do TEN exist -- TEN has actually been implemented so that we can communicate with Polycom on a regular basis for telepresence.

So we're involved in that not necessarily from a network perspective but from a support perspective.

How big is Polycom's demo network?

I don't know off the top of my head.

Polycom has probably 30 or 40 offices around the world, I guess.

More than a couple locations.

They have more than a couple locations.

It is a global network.

Okay.

Perfect.

Thanks, Mike.

Okay.

There are no further questions at this time.

You said no further questions?

Correct, yes, no further questions.

Thank you, everybody, for joining us.

We are, as I said keeping, moving forward trying to improve metrics every quarter as much as we can and we believe that VNOC is going to help us move forward, so we look forward to continuing this progress over the next couple of quarters.

Thank you.

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

This concludes the presentation.

You may now disconnect.

Have a great day.