Oblong Inc (OBLG) 2009 Q3 法說會逐字稿

Good afternoon, everyone. Welcome to Glowpoint's third-quarter 2009 results 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 executive officers, co-CEOs Joe Laezza and David Robinson and CFO Ed Heinen. There will be a brief question-and-answer session 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 non-GAAP financial measures within the meaning of SEC Regulation G. I will now turn the call over to Joe Laezza, our President and co-CEO.

Thanks, Ed, and welcome, everyone. Thanks for joining us today. As mentioned with me today are David Robinson, our co-CEO and General Counsel, and Ed, who you just heard from, our CFO. Consistent with past calls, David and I will present an overview and discussion regarding the state of Glowpoint's business and current industry trends, along with other matters of importance, while Ed will provide a review of our third-quarter 2009 financial results.

We are taking a bit of a different approach today, and our session will also include a presentation. During certain parts of our discussion, we will use that presentation, and it's available for those of you who have connectivity to the Internet by going to our website and clicking on the link for the live webcast. After our prepared comments, we will open up the call for Q&A.

So let's get started. We begin our presentation today with good news once again. For the third quarter of 2009, Glowpoint achieved an increase in operating income. I will repeat that. Once again, we have maintained profitability and posted an increase in income over the previous quarter, and this represents the second consecutive quarter of positive income from operations. As we have indicated in previous quarters, the primary focus has and continues to be the execution of our plan, and the result achieved over the past three quarters are evident of this strategy.

We also mentioned on the last quarterly discussion that we realize there's much more to do, and this remains the case. At this stage of transformation in Glowpoint's business, our cautious outlook remains, although it is our expectation that any future investment in the business will be applied toward growth and innovation and not cash burn. Requiring capital to fund losses is a chapter that is behind us now. We must focus on growth and innovation to maintain Glowpoint's position as the dominant provider of managed services in the video communications market as part of the unified communications mix also known as UC. You will hear us talk more about UC in Glowpoint's position further in our discussion and presentation today.

Our achievements in the third quarter include record quarterly recurring subscription revenue and a reduction in operating expenses as a percentage of revenues. The economy and its impact on Glowpoint's revenue growth and churn appear to have leveled off in general. That said, however, there certainly seems to be more challenges for the global business community as a whole and in one of the most recent representations where the unemployment rates recorded last week, which have approached all-time highs at over 10%. We feel this represents continued residual challenges across all industries, and for this reason we continue to be cautiously optimistic about the recovery trends in the economy and its effect on Glowpoint as a business.

Once again, we have accomplished great results despite the economic challenges and feel we will continue to see improvements in growth from here.

That said, despite any of the challenges I just mentioned, the number and size of opportunities for Glowpoint continues to be very, very exciting. The sales pipeline continues to include many opportunities that could accelerate Glowpoint's growth to the next level, and the economy and buying habits of the business community continues to show signs of recovery.

The real question that continues to be unclear is exactly when that pent-up demand will translate into consistent decision-making to buy now versus sometime in the future.

Some of the most exciting developments are the transformation of the video communications industry and its part in the UC industry. Over the past quarter, further transformation and the significant events supporting video applications seem to be rapidly increasing by the day. Just about four weeks ago Cisco announced their intent to purchase Tandberg for $3 billion. This acquisition represents a significant milestone in both the video communications and unified communications industry while further validating the market for Glowpoint services. We will discuss this and other matters related to Glowpoint services and positioning into the future later in this presentation.

But for now, before we get to that, I want to turn the call back over to Ed who will provide a review of the third-quarter financial results and highlights. Upon the conclusion of Ed's comments, David will comment. After which, I will provide some closing thoughts.

Thank you, Joe, and hello to everyone. We will now discuss our financial results for the quarter ending September 30, 2009.

As we do on most calls, prior to reviewing the financials, I want to remind everyone about the components of our core revenue stream. This revenue is a monthly recurring model derived from the products and services that meet our overall strategic goals from a growth, margin and core competency perspective. We believe these products and services will offer the greatest prospects for high-margin sales and growth, and therefore, our sales and marketing efforts are predominantly focused on promoting them. Our core revenue is comprised of managed fee VNOC services, managed network, B2B exchange services, conferencing services, which are a multipoint bridging, as well as event and professional services. We remain focused on these because they are in line with our corporate strategy and accordingly meet our margin contribution requirements. Non-core revenue includes our ISDN resale business and certain projects which involve the integration of various hardware components for procurement of hardware components for our customers that we do from time to time in support of some high profile customers.

Our concentration on core revenue streams has again generated continued, consistent year-over-year growth for the quarter ended September 30, 2009 with monthly recurring subscription and related revenue increasing 16.2% to a record $5.03 million for the quarter as compared to the same period in 2008. Revenue from multipoint bridging increased 14.8% to $1.02 million from a year ago. Our ISDN resale business continued to decrease as expected and as desired declined 48.6% to $0.29 million for the year over year quarter. This remains a planned reduction in revenue consistent with our strategic focus on higher margin recurring revenue business opportunities. The combined total revenue increased 7.8% to $6.54 million for the year-over-year quarter. The Company's gross margin increased 32.2% to $3.22 million for the quarter from $2.44 million in the same period a year ago. Gross margin as a percentage of sales was 49.2% for the quarter as compared to 40.2% a year ago.

Our operating expenses were $3.08 million for the quarter, which was the same as compared to the same period a year ago and decreased by $0.4 million from the second quarter, which reflects three consecutive quarters of decreased operating expenses. Operating expenses as a percentage of revenue for the quarter ended September 30, 2009 were 47.1% as compared to 50.2% last quarter and 50.8% last year. I should note that we do not necessarily expect that trend to continue but instead level off and potentially grow slightly as we invest in further growth.

We had operating income of $138,000 for the third quarter. This is the second consecutive quarter that Glowpoint has generated operating income since the Company was created in 2000. The August Warrant Exchange transaction eliminated the need to account for derivative liabilities for the $0.40 warrant. This removed a very volatile component of our financial statements. No longer will an increase in our common stock price cause us a significant expense in our financial statements or a decrease in the common stock price cause income. Our final entries related to the derivative liabilities will record a non-cash expense of $1.16 million in the other income expense section of the financial statements for the increase in the power value of derivative financial instruments. Then the accrued derivative liability of $4.75 million shown on the balance sheet on that date was transferred into equity. The derivative liability for the 1.6 million warrants which expire in March 2010 is immaterial. All of this is non-cash, so while it distorted our performance in the third quarter, it did not impact the health of our business or our prospects, which continue, we believe, to be quite good.

As part of the August Warrant Exchange, the Company eliminated dividends on its convertible preferred stock until January 1, 2013. And by issuing 17,372,000 shares of our common stock in exchange for warrants to require 39,088,000 shares of common stock with an exercise price of $0.40. The gross value of the eliminated dividends is more than $5.2 million, perhaps as much as $5.7 million with annual compounding. In this exchange the Company recorded a $1.935 million gain on the redemption of preferred stock, which is subtracted from our net loss to arrive at net income attributable to common stockholders.

I will conclude with our cash position as of September 30, 2009. You'll see that we finished the quarter with $1.1 million cash on hand, an increase of $0.2 million from the prior quarter. This increase is primarily related to better than expected cash collections, partially offset by purchases of property and equipment. While challenges obviously remain, we continue to believe that we have sufficient cash to fund our operations.

With that, I will now pass it over to David.

Thanks, Ed, and hello to everyone who has joined us on the call today. First, let me reiterate the good news we are sharing today. Glowpoint generated positive operating income again. After not doing so in its history, we have done so for the last two quarters, and it looks to be the beginning of a trend. Barring an affirmative decision to increase expenses now to invest for future opportunities, we don't expect to go back. Instead we believe progress will continue in the fourth quarter of 2009 with year-over-year and sequential margin improvement and year-over-year subscription revenue growth of at least 10%, setting up a strong 2010.

I believe it's not a question of whether Glowpoint will be successful, it will be. It is now a question of the degree of its success. Will it be a single, perhaps a double, or will it be a homerun or a grand slam? We no longer have large cash burn. Basically we are just managing our receivables and payables on a day-to-day basis. It is not always easy, but it's a material improvement from where we were not too long ago.

Our business model is sound as it is. We are, however, introducing more automation to accommodate scale. We should also have the double benefit of improving services and further improve margins. While we are also seeking operational efficiencies, it is really now a matter of adding more sales, which will contribute more income to the bottom line.

As for sales, we are involved in more large opportunities than ever before and will expect some wins. While at the same time, we are doing our best to capture bread and butter wins to feed the day-to-day sales and install engine. As for the large opportunities, typically represented by a request for proposals -- we refer to them as RFPs -- and these are enterprises that are evaluating options to implement aggressive video programs. The awards of some of these proposals are approaching final stages. In fact, since our last call, Glowpoint has engaged in many more proposals of significance and has made short lifts on several others.

The important measurement has been our involvement and our solicitation to respond to these large opportunities. The continued good news is that we are still squarely in the game and responding. Our current sales pipeline exceeds $35 million of contract value and includes over 41 RFPs in progress of response or in the event state selection process. While we certainly don't expect to win all of them, we feel good about our position and these exciting opportunities. Our pipeline certainly has not contracted, and sales have picked up over the past couple of months.

Please note that these large opportunities have lengthy sales cycles, and typically even after an award is made, they tend to have long sales cycles before realizing the revenue associated with them.

You'll hear in a bit where we believe the market is going. It is very compelling. Glowpoint is in the unique position of being one of the only carrier grade managed video services providers in the unified communications industry. The projected size of the managed video services market is in the billions of dollars in the next few years with many analysts forecasting 2010 to be the year of accelerated growth. We believe we are well positioned to capitalize on that and have the roadmap to address all market needs.

We are executing on that roadmap with the funds that we have, being very cognizant not to go back to the days of big cash burn. What that means is a slower execution of the roadmap and rollout of services. Glowpoint has been and remains a market leader. Market demand has come around to what Glowpoint is offering. We are in a very good position. If we want to invest more to accelerate the roadmap rollout and increase our chances to capitalize on the opportunity we see ahead, we may consider raising some growth capital. If that makes sense, we will do it. If not, we will proceed with our current practice of funding roadmap deployment with the funds that we have, and it may take a bit longer.

Another thing to consider on this market is possible business combinations, adding inorganic revenue growth and adding other pieces of the puzzle that we are building. While we have nothing to report and, frankly, may never have anything to report, we believe that Glowpoint is a great platform for such transactions.

We are the only pure play in the managed video services industry. We remain the only managed service provider with carrier DNA and a foundation to build upon any acquisition implementing our systems and processes to add more scale after digesting such an acquisition. And we are a public company. So we have a currency that may be attractive to a target. All of these possibilities are very exciting. While we cannot predict what will happen, rest assured we will do everything we can to maximize shareholder value.

On our last call, I outlined our agenda vis-a-vis Investor Relations, noting that an engagement was likely before the end of the year. As you know, we have not yet pulled that trigger, and the reason is we were in the process of refining our message. After all why invest time and money on something that was a work in progress and changing. We are confident now that we have the right message.

Please note that this is not a repositioning of Glowpoint but an evolution of the Glowpoint story. It's a natural continuation of what we have been doing and how we are refining that to meet the market.

I will conclude by doing what I have done on past investor calls, and that is invite all of you to use Glowpoint services as a face-to-face pre-meeting before a trip or perhaps as a complete replacement. You can have that face-to-face meeting without the cost, lost time and hassle of air travel. You have invested in Glowpoint and video communications. If you are not using it, please contact me and see for yourself what it is all about.

I recently completed a sales call with a hedge fund that purchased Glowpoint services. I asked them how often their principles travel and how video could be used to improve their productivity. After some discussion, we discovered a great opportunity for an upcoming trip to test the concept. In short, a trip to London from Tampa, Florida was avoided by enabling the London office with a registration to our TEN exchange, and we located a public room facility in Tampa, Florida which served as the other end of the meeting room. This executive, therefore, avoided at least a two-day trip with a simple 10-minute drive to the public room, and they successfully facilitated their face-to-face meeting with London. The customer now is a permanent part of the global video communication community.

I will now turn it back over to Joe, and we will bring you up to speed on our exciting message to the marketplace. We will then conclude and open the call up for Q&A.

Thanks, Dave. So before closing, I will further touch on the industry and Glowpoint's position in the industry. As mentioned earlier, the industry continues to transform, and with this Glowpoint will continue to focus on our position in this dynamic environment. The Cisco acquisition of Tandberg is a milestone, not just for the video industry but one for unified communications.

In a statement about the acquisition, John Chambers suggested that the video communications industry is a $34 billion market. There have been many research reports from the major analysts such as Gartner, IDC, Frost and Sullivan over the past six to 12 months which forecast explosive growth, and this will continue to become a reality as the UC leaders such as AVIA, Cisco, IBM, Microsoft, HP, even Apple and many others enter into the video landscape aggressively.

What I'm showing here for those of you viewing the slide presentation is an illustration of the market for video in general. Transformation is certainly underway and can be defined as the lines beginning to blur between the consumer market and business market. If we explore that further and look at video, there are, in fact, two independent uses or applications of video that fit into this. One is one-way video and your typical YouTube type applications for streaming, and the other is two-way interactive video, and that is where videoconferencing and telepresence have lived.

If we look at the statistical data associated with one-way video, the numbers are staggering and have been and continue to be. Yankee Group put out multiple studies in this one particular study where the information is extracted from. The sum of all forms of video -- TV, video on demand, Internet and peer-to-peer -- will account for over 91% of global consumer traffic by 2013. In the two-way space, as we have talked about, the numbers continue to evolve. Gartner Research has gone from predicting a $2.4 billion market just under about 12 months ago to suggesting this is $8 billion by 2013 and beyond.

One of the most exciting things there is that they attribute most of that growth to the managed services space. If we look at the companies that are ultimately involved in the video space, the logos have certainly changed. If we explore where these logos or businesses are focused, we will find many are in the middle and not so much on one side or the other. And what I mean by that is not focused on the consumer space and not focused only on the business space, but ultimately focused on both since again the lines are blurry.

After all YouTube, for example, started off in the consumer space and now is used very heavily in the business community. When we look at Cisco technologies or if we look at things like Tandberg and Polycom or as they potentially will become Cisco, as we know Tandberg is becoming, they are moving more toward the middle. What the middle ultimately is is the unified communications space, and the Logos that fit into this are in the unified communication space.

We feel Glowpoint is a key enabler for the UC space with its managed services and B2B exchange services. Our video as a service approach and superior operational support capabilities is being admired and sought after, not only by the video user communities but other service providers looking to learn how to get it right. Furthermore, Glowpoint services facilitate any to any video communications independent of equipment manufacturer and network, and the seamless experience our customers enjoy today when using our services is exactly what the unified communications strategy is all about. We believe the transformation of the video industry has positive implications to all involved in the supply chain. Glowpoint provides the systems, operations, video peering exchange and technical expertise independent of manufacturer to enable video communications today. The growth of the market and ongoing major customer wins serve as a testament to Glowpoint being a critical component of this ecosystem.

From a go to market perspective, the effort in 2009 in positioning our products and services to focus on video operations services, also known as VNOC, conferencing services and network and B2B exchange services continues to create awareness and excitement.

The key value proposition for our existing customers and ultimately into the future is the fact that our services -- and we are beginning to talk about them as being in the cloud -- enable wide adoption of video. When you achieve wide adoption of video, the value you extract is cost containment and savings, increased productivity, lower business costs and carbon footprint reductions.

One example of cost containment and savings is effective travel reduction. David mentioned that example where a trip was avoided to London and that is a perfect one and the use of our applications and services to achieve it. The key in that example was not just internal use of video, but the ability to connect one of their offices into our exchange and connect to a public room that is also part of our exchange, that is not part of their internal network. So the external use of the video communications, which would secure B2B capabilities, became critical.

Lowering business costs come in the form of lower total cost of ownership, for the technologies, a greater return on investment, of course, and cost effective and less capital intensive options.

So what is next? Well, we find ourselves and our approach in the market today appropriate to capitalize on the current window of opportunity and see the real future growth opportunity for Glowpoint to be in a UC ecosystem. You may have begun to hear us referring to our services in the context of video as a service or video in the cloud, and we will continue to hear this referenced into the future. It is all about Glowpoint's position in the market as it evolves from just the video space and more about UC and cloud computing with the associated application services supporting that effort. We already are recognized amongst the industry and market analysts as a leader in the video space, and our focus will be to take that position into the next level within the UC industry.

I will now shift focus for the next few minutes on our slide presentation to explore this in a little more detail. Here we are demonstrating Glowpoint services as a plug-and-play solution, and ultimately if you look at the cloud on the left, that is a depiction of TEN expanding into a simple, scalable and secure solution inside a cloud. If you notice, we suggest that any business means or services can connect into our cloud.

Our B2B exchange services, VNOC managed services and conferencing services still are our pillar services that ultimately will reside inside the cloud. It is ultimately the positioning and means in which you can connect into that cloud that will become easy, simple, scalable and secure. Companies like salesforce.com have done a great service for the unified communications space and cloud computing, and Glowpoint feels we are in a great position to take advantage of that and some of the barriers they have knocked down such as IT communities being concerned about security and connecting to external resources to support their applications.

One thing I will point out here is some of the statistics we use as factors when we go and present Glowpoint services to not just be a whiteboard idea and ultimately be validated is the number of rooms we support and the number of endpoints that are available on our community and the number of businesses connected. In a recent press release Cisco put out, they mentioned that they are building technology to fit inside these exchanges or for businesses to embrace such that they can use a global directory to communicate with each other.

Well, in that release they suggested there are 75 different companies available in over 1000 rooms. I would submit and represent that our proof points being that we have over 650 individual businesses and over 28,000 different endpoints certified to communicate over our exchange are enough to ultimately suggest Glowpoint is not just a whiteboard idea, and we are here and our foundation is laid.

This is another example of how the future of Glowpoint services will become much more simplified, accepted and understood. So in this illustration we show a complex environment, two different types. Perhaps one is a Cisco environment, the other is a Polycom or Tandberg environment. At the end of the day, both of them are very complex. This is what most enterprises look like. They purchase a whole bunch of infrastructure to plug their video endpoints into to operate amongst their networks. They have to worry about how they can get off their network, etc., etc. and the list goes on.

We expect to take our services and introduce a concept which is already there but ultimately positioned in the UC space to go from that complexity to this simplicity. Whereas you take your video endpoints, you plug it into your network, and you ultimately plug into the video cloud for all of that infrastructure and technology required to make it work. That is what TEN and our video services cloud represents.

So with that, we look forward to the coming quarters and feel the opportunities to continue to grow the business and strongly position Glowpoint into the future is obviously that. To recap our call and presentation today, not only did we achieve the second consecutive quarter of positive income from operations but realized an increase over the previous quarter. We reported record subscription, multi-recurring revenues and strong growth. We maintain a strong position in the market and continue to be recognized and validated. We have a strong pipeline of opportunities and have realized an increase in sales over the past couple of months, and ultimately we see Glowpoint's path to a strong position in the future of video industry very clearly and will be focused on this to further capitalize on the opportunity in front of us.

And finally, some closing thoughts. As we have discussed today, the video industry as we know it is undergoing massive transformation. With that, Glowpoint has and will remain in a solid position as a provider of managed services for the application of video as we innovate further into the next generation and era of video communications. Soon enough we will all begin to speak the video conferencing and telepresence in the same context as unified communications and cloud computing, and Glowpoint recognizes this as a great opportunity to garner a share of a huge market. The size of the addressable market will only be realized as it becomes reality, but one thing is clear. It is a much different one than it has been in the past, and the size is undoubtedly much larger than it was in the past.

The bottom line is the conditions continue to be favorable and the trends are beginning. We now must execute, innovate and capitalize into the next year and beyond and are incredibly excited and believe every shareholder in the Company should share in this excitement. We are committed to position as the dominant player and provider of managed services in the video communications market as part of the unified communications mix.

Thank you very much. Moderator, you can open up the call for questions at this point.

(Operator Instructions). Jack Gilbert, private investor.

I have a bunch of questions, but I'm just going to start with the first one. Do we have any customers that are approaching or are at 5% of our business?

Yes, we do. We have one group of customers at approximately 14% of our business.

Can we talk about any names that we do have or some of the names that we have gotten over the last three months that are new customers?

Well, we announced -- this is Joe Laezza. So we did announce over the last quarter a couple of wins of significance and in particular the ones that we were permitted to use particular names. One of which was Silverlake that we won with our partner, AVI-SPL. And that was in support of consumering our VNOC services supporting their video environment.

As far as other wins of significance, sure there has been some and we unfortunately have been somewhat restricted in announcing them but are doing our best to ultimately position some of that news to be beneficial to the consumers of our services and perhaps positioned as white paper studying how Glowpoint is helping them achieve greatness in their video program and perhaps saving money. So that is in the works, and we will continue to focus on that.

Hopefully of the 41 that are out and that are worth $35 million, that if we get some, we will be able to announce who they are so that people realize that we are winning some. It is kind of hard to sit out here and hear we are winning some or hope we are winning some and not getting any confirmation that we are winning them.

We always try to get the customers to consent to be named, Jack.

Well, if they won't -- I mean if you cannot get them, I've mentioned this before, can't we just be --

Doing no names?

Yes, I mean say that they won one in the broadcast business, we won one in the whatever it is industry so that you can tell people that are on our calls that we are winning some.

And we did that recently as you I'm sure read with somebody in the financial services industry.

I just want to be sure that we can continue to do that. One more question that I have that is pretty -- I guess you guys can kind of help because you gave the example of the person that you -- twice you made the example of the guy not going to London, and that was a system. So I'm going to see if I can break this down to new business and old business. And say new business is somebody gives you a proposal for a brand-new company that does not have video and it is with Polycom or AVI and they are giving us a proposal for us to be part of that system and in that network, and that is going to be new business.

And then old business is going to be like the one you just mentioned, that somebody already has their system up and does not know how to get to -- and somebody else has another whole system up, and they are not talking to each other, and we are going to go out there and make a proposal to both companies to share and that anybody on one network can talk to somebody on the other network. And I'm going to call that old video equipment that has already been installed, and we don't have to wait for anybody else. All we have to do is go out there and sell those two companies our system to be on a network. Can you tell me which way we are trying to go our sales or that we are trying to go? Have I made that clear, or am I not --?

Yes, I'm not sure we followed you exactly. But if you could just summarize the point you are trying to make or associate it with or give us an example.

An example is I have a network up already. I don't need to go and buy any more Polycom equipment, but I want to talk to my lawyer or my financial advisor or whoever, and I just need your service without anybody waiting for anybody else to get the okay.

Yes, so actually -- I'm glad you bring it up -- that most definitely is a great opportunity for Glowpoint's Exchange Service. In fact, the example David had used was exactly that.

That's what I'm saying. So because there is a lot of business -- there are a lot of people who have a lot of video stuff, but we don't have to wait for new people to buy new video equipment based on the economy.

You got it. Exactly. And when we refer to the viral nature of TEN, it is just that. It is registering the endpoints of video users. We can enable their endpoints just by registering it. We don't have to provide network. They don't have to buy equipment or (multiple speakers) anything like that.

Why are we -- are we going after that business? That is what my question is --

Absolutely.

What percentage of our new business is going to come from that what I call old business that has already been in the system, people already have their equipment.

Yes, yes. No, absolutely, there's multiple different campaigns, Jack, that go toward that end, and there is a significant amount of installed base of video out there. And I can tell you that most of the exploration and evaluation process is directly in line or associated with that.

So if someone were to go explore or evaluate the purchase of, say, a telepresence room, they most likely have a whole bunch of embedded installed base, and Glowpoint has seen a great opportunity to go and capitalize on that as well. It is the change in focus or change in direction to get more out of your investment you have made, and that is exactly what Glowpoint brings to the table. (multiple speakers)

I watched the financial channels, and that is exactly what I'm saying. You see those guys on the financial channels and it is just one way. The financial guy has the network and he talks to an advisor or economist, and that guy calls back and has the same background, and okay, those are only between us. But they don't talk to anybody else. Why aren't we going after any of that business?

Yes, we are, Jack. I don't know why you think we are not. Why don't we give other people an opportunity to ask some questions here. I don't want to -- (multiple speakers).

Okay. Thank you.

Thank you very much, Jack. Appreciate your support.

(Operator Instructions). [Jim Wookie], WIM.

I was curious why with the recurring revenue story, our revenue was down almost $0.5 million over Q2?

The main reason for that, Jim, is that in Q2 we had one-time events like the NFL draft, trading camps. That is the primary reason why the revenue was down on that. Some of it is down because the ISDN resale business went down also as we planned. Those are the two primary components of the summertime events from the broadcast sector, and the other one is for the ISDN.

And Jim, that is consistent with historical trends. You will see that the second quarter jumps up with the NBA and NFL drafts as well.

No, I understand that, but I look at our relationships with the Polycoms of the world, the Tatas, the AVIs, we are dealing with the monsters, and you would think that that revenue would be more than compensated from those relationships that we have entered into over the last year.

Well, we did note that the large number of RFPs that we are participating in and many of those are with some of those partners that you just mentioned.

Okay. What do you think is a sales cycle that we can get some type of a road map in terms of when these things should start coming online?

Jim, there's two dynamics there at this point. And one is an unfortunate one being the economy that I do believe there is enough tangible evidence to suggest that it has impacted some decision-making and deleted things. But that aside, these large proposals typically are nine-month sales cycles. I think they have been historically faster perhaps six, but have become nine month to 12-month sales cycles considering some of the other dynamics like indecisiveness due to the economy.

The good news and good measurement is we are still in them, which would suggest they have not been awarded elsewhere. The bad news is they ultimately are taking a bit longer than we anticipate. But to David's point, I think the key message here is we absolutely are seeing increased activities relative to some of these strategic partnerships. One measurement of sales obviously is the results you achieve, but then you ultimately have visibility into the future based on what your pipeline looks like. And, as we have indicated, the pipeline looks very healthy, and it is not contracting by any means.

Okay. Any update on TEN since our last call?

I think the biggest update we would provide relative to TEN is what we talked about today. We knew that we ran the risk of confusing some, and there was a lot of things to talk about. But we felt the significant events and transformation of the video industry as we have known it is important to talk about. Because that is ultimately what Glowpoint needs to capitalize on, and the exciting thing is that we can. And how that is directly related to TEN is the cloud. You know, the services in the cloud.

As far as traction and ultimately wins, I can tell you that we are winning business because of it. I do not have any statistical data to tell you we went from X to Y in terms of number of registered endpoints or businesses at this point. But we are planning on publicizing that kind of statistical data in the very near future.

Okay and last question. On the last call, we talked about the video directory and whatnot and you mentioned Cisco coming up with a global directory. I mean is this indirect competition or complementing what we talked about? You know, if you can shed any light on that.

Sure. And this actually goes to a call that we received online about the status of the Yellow Book launch that we mentioned last quarter. Glowpoint is in the process of assembling and putting the final tweaks on what we call the TEN directory, the Telepresence interExchange Network directory. That will be the white pages of the Yellow Book for all the registered endpoints. So that somebody can go and referring back to that example that we discussed of somebody going to London from Florida. They could just go online and buy a zipcode search or otherwise see what the other endpoint was that is available. If you are in your business and you want to reach somebody in another business, you would be able to go into that directory, and you would be able to find out that the Northwest suite at some pharmaceutical company is a registered endpoint. So then you could contact them and, say, I'm part of TEN; you are part of TEN. We can seamlessly connect in a secure way our two businesses. So that directory is underway, and we expect to launch in the coming weeks -- to formally launch it with an announcement.

Okay. And what exactly is Cisco doing with their global directory?

Yes, I will take that. Well, they just announced it. I think that that is first off, and it's not actually a surprise by any means. Cisco historically what they have been doing is innovating, and thanks to them the video industry I think is benefiting and everyone involved. And their innovations are surprising some for sure because it does suggest they are getting into the service business here and there. But if we look historically on what is happening there is they ultimately create a standard and drive acceptance and then push it back out to the service provider community. A good example of that is their TelePresence 3.0 exchange, which ultimately at this point is no longer accepting any new customers, and any customers on it need to migrate to the provider of choice.

So they are going to be doing some of those same things in other unique applications in support of that strategy, and we absolutely are excited about that. And part of the reason is some of these tools and technologies that they build ultimately provide for integration opportunities or even opportunities to accelerate or power some of the tools inside of our service providing cloud. So in the future there may be something that suggests Glowpoint's adopting their means in which they do their directory service and integrating what we build to it. So think of it from the perspective of they innovate technologies that drive applications and services, and this is just another one of those.

I think we have some questions online that we can go ahead and answer. Unless, moderator, there is anyone else in queue on audio?

There are no more questions in the queue at this time.

Okay. Great. So our first question looks like here was with regards to reflecting on the importance of participating at the Annual Blu-ray Conference and what feedback did we get?

Thanks for the question. Interestingly enough, I actually saw some news yesterday suggesting that we participated in the event, and I can tell you that that was not accurate. Glowpoint did not actually participate in that event, and we are not involved in the major media entertainment players. We provide services for the two-way video communication space, and what we provided for that event was the ability to use our exchange and connectivity to that event such that Martin Scorsese can connect out to the West Coast and do a keynote speech. And so Glowpoint services were used to facilitate that, and they paid us for those services ultimately to facilitate that event. That happens often where Glowpoint helps the broadcast industry or other industries obviously to facilitate events. An example is something we mentioned before like the NFL draft and all.

The next question was broadcast opportunities. Are there any new ones out there?

Great question. Thanks for asking. So let me repeat that. Is there any new broadcasting opportunities out there? The answer is, there are, and that market has certainly been rewarding to Glowpoint, and we expect it to continue to be. One of the most interesting applications of our services that are being applied here is directly related to live two-way video interaction again as an alternative to satellite broadcast but using that content for Web content.

So, in other words, there are some -- there are some of these broadcasters who have websites and ultimately put video programs, literally just like TV programs, on their website and they use Glowpoint to power that, such that they can go and do live or taped content via our services to do talking head interviews or segments in live two-way action pieces.

So there is that, and then there is the what we call Tier 2 and Tier 3 sports market that is ultimately starting to look closely at Glowpoint services to broadcast certain sporting events utilizing Glowpoint services as an alternative to satellite truck roll. So an example of Tier 2 or Tier 3 sports is volleyball or as they call it the Olympic type or college sports that are not necessarily as popular to be aired on primetime TV. And that is another Web application.

So we are involved in a number of opportunities there, and we are seeing some of them come to fruition. In fact, perhaps we can start announcing some of them in the very near future.

I think the next one is about doing open houses to welcome people in to see everything that we are doing. Glowpoint does manage a number of demonstration rooms around the country. So to the extent anybody is interested in seeing a demonstration and experiencing it certainly contact us. We can make arrangements for that.

One of the open houses that we thought about doing was in New York City demonstrating our interoperability as a service announcement. That is something that is still planned, and what was really exciting about that particular service offering is we were able to demonstrate in high-quality fashion interoperability between disparate networks across different continents using different equipment, and it was just a great demonstration of Glowpoint's intellectual property and skill in making this happen.

So that is an open house. I don't know if that is what the person who asked the question was inquiring about. I think that open house is still in the works. But to the extent you want to get a feel for a telepresence room or anything like that, please contact us, and again, there are demonstration facilities around the country that Glowpoint either manages or can gain access to for you.

Around the globe.

Around the globe, actually yes.

We answered the one on the Yellow Book. It looks like there is another one here. Can we give examples of client or clients experiencing organic growth, and that is a company that may have started with a few video endpoints and perhaps now has dozens of locations online. We for sure can. There is a long list of companies that we have enjoyed supporting that we watch and continue to grow into the application of video.

One example is one of our pillar accounts, and it is URS Corporation, who is a large engineering and construction firm. URS continues to grow with Glowpoint, and some of it came on the heels of some acquisitions they made and ultimately introduced the application of video into the acquired business as they integrated it, or as they increased their use of video to reduce travel. The executives at URS did, in fact, going into 2009 implement a pretty aggressive program to eliminate travel and rely heavily on Glowpoint to help them achieve that. And so I mean they have grown from starting I think they started with Glowpoint 11 different locations, and there are over 95 worldwide now. So that's a perfect example of companies that just grow into this application.

I mean the examples go on especially today in this time of responsible management and cost-cutting and containment and the need to ultimately be a lot more efficient in that the economy is driving some of that behavior. But the nicest part of it is the lasting effect and impact it is having on our industry. Once it takes off like that, it is there to stay, and it is not a temporary application. It is definitely becoming a fixture and a standard practice for them, and there is plenty of other examples like that.

And just to build on the point that Joe touched on with talking about acquisitions, when a company acquires another company that has an embedded base of video communications equipment, that is really when Glowpoint's value is brought to bear. Because you may have competing technologies, people are accustomed to using one particular remote. They know how to use it. They have figured it out. By bringing Glowpoint in to solve their video communications needs, we basically handle everything soup to nuts so that that embedded base is not stranded. You don't have education concerns with educating a workforce of thousands of employees with different systems. When you sign up for Glowpoint services, we basically make video very, very easy, and it is particularly true in the acquisition context.

So I think there's like two final questions here, David. Maybe you and I can talk about, or it looks like you can probably handle these two. The first is, will we, Glowpoint, be attending any investor conferences to get the word out about Glow? And the second is, are there any patents coming along that we can share with the audience? So investor conferences goes to probably the IR strategy.

Absolutely. As you know, we did participate in an investor conference last month. It went well. That was the beginning of our investor outreach. That will continue. We do anticipate engaging an IR firm. Again, we have refined the message. We are very confident with the message that we have now and the value proposition in the marketplace. So I believe we are going to be doing more of the investor conferences and the like.

The season has somewhat passed a little bit, but there was one going on today, for example, that would have been good to get to. But obviously we wanted to get our results out. And again, the investor relations and the outreach to the community will continue.

As far as patents coming down the line, we continue to respond to the US PTO, the Patent and Trademark Office. Some good news, we do have another one that we believe will be issued. The notice of allowance came out, and I expect in the next week or so perhaps a little bit longer for the formal award of that patent. So that will be the second patent awarded to Glowpoint. The first was for our live operator assistance. This one is waiting for IP-based video. So call detail records for packets using a video network. So that is pretty exciting. And there is another six or so in the mix, maybe seven patents pending that we continue to just work through the system.

It is a long process. We appreciate your patience on that. So there is some good news that we hope to announce in the not-too-distant future. And again, we do have that notice of allowance. Okay. Anything else?

It looks like there might be some other residual questions coming in. But what we will do is we will do our best to answer them publicly so everyone can share in the responses, and that would be I think part of the archived session there.

But with that, unless there's any additional questions on audio, we would like to call the session to a close. And moderator, before we do that, can you just check to let us know if there's anyone in queue on audio with any additional questions?

There are no questions at this time.

Excellent. Well, speaking on behalf of David, Ed and I and the entire management team here at Glowpoint, we look forward to the coming quarters and would like to again thank everyone for your participation today. We appreciate sincerely your continued support.

Thanks very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.