Oblong Inc (OBLG) 2010 Q4 法說會逐字稿

Good afternoon, everyone, and welcome to Glowpoint's fourth quarter and fiscal year 2010 results conference call. Before we begin, I want to remind listeners that this call is being webcast live over the Internet and that the 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, CEO and President, Joe Laezza, and CFO and EVP, John McGovern. There will be a brief question-and-answer period following the Company's prepared remarks. I would now like to introduce Glowpoint's CFO, John McGovern, who will review the Safe Harbor information with you now. Mr. McGovern?

This partial discussion of the statements of financial conditions and operations of the Company should be read in conjunction with the consolidated financial statements and related notes contained in the Company's annual report on form 10-K for the fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission. Various remarks about the Company's future expectations, plans and prospects constitute forward-looking statements for the purpose of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995. Such remarks are valid only as of today, and the Company disclaims any obligation to update this information. Actual results may differ materially from those indicated by these forward-looking statements as results of various important factors, including those discussed in the Company's most recent annual report on form 10-K filed with the Securities and Exchange Commission. In addition, today's call and webcast may include non-GAAP financial measures within the meaning of SEC regulations G. I'll now turn the call over to Joe.

Thanks, John. Welcome, everyone, and I apologize as well for the little delay there. Thanks very much for joining us today. I'd like to remind everyone that the presentation that we're using today is actually available for viewing realtime by going to our website at www.glowpoint.com and clicking on the live webcast link.

So let me start by saying that I'm pleased to report significant progress for the fourth quarter and overall for the year. We entered into the second half of 2010 with continued change and transformation in the video industry, and the same, if not more, for Glowpoint. We've accomplished a great deal and I'll discuss this in further detail while reporting on our strategy update later in our call, but first I'd like to highlight our accomplishments in the quarter.

In Q4, our cloud-based managed service revenues grew 46% year-over-year enabling total revenue growth of 11% in the same period. We continue to see traction and growth in our cloud-based managed services, which now makes up for 41% of our total revenues for the quarter. In fact, these services have consistently grown since 2008, at a two-year compounded annual growth rate in excess of 50%. This is the primary driver of our growth today and into our future.

We continue to invest in growth and operating efficiencies, and in the last six months, a number of these investments and changes were implemented. We initiated a revamp of the image of the Company, and assembled a world-class Management team with key unified communications industry veterans. We moved into our new global HQ facility in the tech corridor of Murray Hill New Jersey, and initiated the pursuit of listing the Company on a national exchange. In addition, we secured multiple new partnerships in the second half of 2010, and expect this and other exciting new ones to solidify our go-to-market strategy into 2011.

These accomplishments prepare and enable Glowpoint for the next wave of growth. What's most satisfying is that we've achieved all this while continuing our progress towards sustainable profitability and, in fact, we reported positive cash flow from operations and adjusted EBITDA earnings in the quarter. Our core strategy of capitalizing on a rapidly growing market for cloud-based managed services is paying off and once again the next stage of growth opportunity is upon us. That said, I'll provide a bit more detail update along with closing remarks after John provides an update of our operating results. I'll turn the call over to John. John?

Thanks, Joe. I can't tell you how excited I am to be part of the Glowpoint team and the opportunity that awaits us. Since starting, it's been a challenge to comb through the results and find what I call the rhythm of the business. Each of the periods seemed to contain several different types of events that make it somewhat difficult to identify the health of the operations in comparison to other periods. As a I review the results, I'll point out some of the items that I take into consideration when analyzing the business.

As Joe said earlier, we have accomplished a lot in the fourth quarter of 2010. We moved our Corporate Headquarters to Murray Hill New Jersey, we've executed a reverse stock split in anticipation of getting listed on a national exchange and we took the necessary painful actions of sizing the Company to the current business needs. With all this change it could have been easy to become distracted from running the day-to-day operations, but we didn't let it bother us. In the fourth quarter we produced the second consecutive quarter of year-over-year double-digit revenue growth, 46% in our cloud-based managed services. We reduced the loss from continuing operations by over $500,000 from the third quarter of 2010. We turned positive in our non-GAAP measurement of adjusted EBITDA and we ended the year with $2 million in cash.

Now we'll dial a little bit deeper into the financials. Overall revenues for the year were $27.6 million, which is an increase of 9% from 2009. Our cloud-based managed services revenue consisting of our open video collaboration and managed offerings of $10.5 million, grew 41% from 2009 and our OV Connect and other services revenue of $17.1 million declined by 4%. Revenue for the quarter is $7 million, which is 11% higher than the fourth quarter of 2009. The primary driver of the growth is our client-based managed services revenue, which is up 46% from the same period in 2009. In the quarter we had $2.9 million of revenue for these services, which account for 42% of our overall revenue.

Our OV Connect and other services were $4 million -- $4.1 million for the quarter and were down 6% from the fourth quarter of 2009. Worth noting here is that our Connect service is primarily designed to provide a means to access our services with which we bill. And while there are opportunities to monetize the Connect aspect of the offering, we do not feel that this is a key driver of accelerated growth. IP networking is largely, in part, a commodity service, and Glowpoint has recognized the need for a component to access its cloud-based managed service, although we do not expect growth to come from here. In fact, this is our network connectivity business quickly becoming the minority revenue source over the past year.

In 2010 operating expenses were $30.1 million compared to $24.6 million in 2009. This is one of those categories that require a bit of drill down to understand the true rhythm of the business and the comparison between the two periods. In 2009 there was a tax adjustment applied to the reporting period that resulted in an expense reduction of $2.5 million for the year. Additionally, in 2010 we paid $665,000 more in severance than was paid in 2009. The balance of the increase was an investment in supporting our cloud-based managed services, and an investment in our marketing and sales.

Operating expenses for the fourth quarter were $7.3 million, which is up by $2.7 million from the fourth quarter of 2009. Again, from a rhythm of the business perspective, the fourth quarter of 2009 contained an adjustment in the amount of $2.1 million associated with the tax entry I mentioned earlier. Also in the fourth quarter of 2010, we incurred severance payments in the amount of $459,000, where we did not have any in the fourth quarter of 2009. I'd like to bring your attention to the decline in operating expenses of $466,000 from the third quarter of 2010 to the fourth quarter of 2010. The current level of spending is a better representation of the trajectory of the Company expenses versus the previous quarters. Prudent cost saving measures that the Company has taken in the fourth quarter, has driven reductions of over $400,000 in Company spend.

Our net loss for the fourth -- for the quarter was $447,000 which includes $458,000 of severance payments. Last quarter we began the divestment of our new vision business and are counting for the financials of that business in discontinued operations. The net loss in the quarter from continuing operations is $379,000, which is a $533,000 improvement from the third quarter of 2010. From a management perspective we use a non-GAAP measurement of adjusted EBITDA to help us monitor the performance of the business. Adjusted EBITDA takes income from continuing operation and excludes interest, taxes, depreciation, amortization, stock-based compensation and severance and is a supplemental measure to GAAP.

For the year, adjusted EBITDA is a negative $137,000, versus $6,000 in 2009. When looking at the quarter, however, adjusted EBITDA is a positive $486,000 compared to a negative $36,000 in the fourth quarter of 2009. I believe that the trend of the quarter is far more a relevant indicator of the health of the business than the annual number. The net cash provided by operating activities was $119,000 for the quarter compared to a negative use of $221,000 in the fourth quarter of 2009, and a $52,000 improvement over the third quarter of 2010. Glowpoint ended the year with a cash balance of over $2 million.

The fourth quarter, from my perspective, has materially improved from the performance reported in the previous quarters and I'm very pleased with the current results in relation to what I would expect going forward. The video managed services market is one of the hottest markets in technology today and is Glowpoint's sweet spot. We have taken the appropriate actions to get our cost structure in line, and for the second consecutive quarter, have produced positive cash from operations. I look forward to sharing our results with you going forward. And with that I'll turn it back to Joe.

Thanks a lot, John. So before closing I'd like to provide a more detailed update on our strategic focus. We're making significant progress in fulfilling our promise to capitalize on the expanding ecosystem for video as part of the unified communications mix. Our commitment to developing services that provide value to the business communities is on track and our core strategic initiatives are well underway. In the past I've outlined these initiatives in the following five areas. Development and innovation of our services, strategic partnerships, and service providers, operating efficiencies, and enhanced go-to-market capabilities. The further development and innovation of our services to allow open access involves open video, which is our overall strategy and name we are using for our service development go-to-market efforts. This represents our overall strategy to bring simple and seamless video communication to the business via a cloud-based platform.

Our open video strategy made further strides in the past months as we launched new services for the video communities. In the past six months, we launched our automated monitoring and notification service called NOTIFY, which is designed to enable service providers and integrators to attach technology sales to Glowpoint-hosted applications. Most recently we announced virtual video room, also known as VVR. This is our cloud-based automated virtual conference, which allows simple and immediate video meeting environments for all technologies from Telepresence rooms to room systems, PC web users and mobile devices across multiple platforms. In fact, we announced the enablement of BroadSoft BroadCloud platform, which was just recently showcased at Enterprise Connect in Orlando a couple weeks ago. And during which time we also announced the ability for Skype users to join sessions on this platform.

Open video is the evolution of Glowpoint's service portfolio and includes three primary components of the service offerings. First is, connect like providing simple plug-in capabilities and options to access our cloud-based services. Next is collaborate via our cloud-based hosted infrastructure and services. And finally manage, which provides access to a suite of managed services that includes certain self-use and high touch white glove support. As you heard John mention, the connect component is directly related to networking service and has evolved to become a means to gain access to our cloud-based managed service platform. We are not in the networking business per se and I don't feel we're positioned to grow this business at any pace that resembles the managed services. Therefore, we'll continue to offer the service, although our go-to-market strategy will remain focused on our cloud-based managed services as the key growth area of the business.

Next is our strategic partners. Building upon our strategic partnerships and focusing on service providers is critical for Glowpoint. In Q4 we announced a number of key strategic partnerships including BroadSoft, Acme Packet and Equinix, and the pipeline of new business opportunity with these partners and interest levels are rapidly developing. Our existing strategic partnerships throughout the year with Polycom, Tata Communications, AVI-SPL, among others are solid and gaining plenty of momentum. We accept-- we expect further exciting developments in the near future as Steve Vobbe, our new Head of Sales and Marketing, implements his plans for aggressive expansion. One exciting new development that is underway is a strategic partnership with Avaya, of which further details will be disclosed in the coming months.

Next is our operating efficiencies through automation and innovation of our delivery models. As mentioned, we've announced further automation of our services and the development of certain operational tools that will make our managed service operations very efficient and capable of delivering highly scalable and global support. We feel Glowpoint's well ahead of the market in delivering on a cloud-based managed service model and benefiting from the years of experience along with the investments and unique applications in services such as our user portals and mobile applications under development.

And finally our enhancements to our go-to-market capabilities. Here we expanded our marketing business development and sales resources to better align with our strategic partners and programs. We've realigned the organization, starting with the addition of Steve, who, as I mentioned is a unified communications industry veteran, who will continue to focus on our global go-to-market strategy and strategic partnerships. Steve has spent the last four weeks deeply involved with our organization and partners, and has already begun to implement adjustments to aggressively target the significantly sized installed base and also new endpoints shipped. You'll hear us talk more about this in our future operating results and key metrics as we drive toward an endpoint and certified system attach rate to gain market share.

Now I'd like to talk a bit about our key focus and initiatives. You've heard John and I mention several times that our growth is driven by our combined managed services in the form of cloud-based managed services. This is our primary focus where the demand and opportunity represent significant growth trends for Glowpoint. We have a foundation and history that puts this Company well ahead of a market which now is coming to fruition for us. We expect the growth of these services to continue on a rapid pace and ultimately become the majority of our overall revenues this year.

For 2010, these revenues grew to over 41% overall, and in Q4, as you heard us mention, they grew 46% as compared to the previous year. The drivers of additional and accelerated market share here is directly related to the number of endpoints and participants in our open video cloud infrastructure. It's fairly simple and it equates to the more endpoints equals more certified users which equals more billable opportunities for our open video cloud-based services.

So before I close, I'd like to summarize the strategy here. As mentioned, there's a great deal of activity and a significant number of accomplishments to speak of. In summary, we've changed the way we look, we've changed the way we act, and we've changed the way we deliver our services. First, many changes to our organization. As mentioned, we've assembled a solid Management team. In June, brought on key additions to the development and product focus in Anil Balani and Shane Bouslough joining the organization. In July, Michael Hubner joined us as our new Corporate Council. In December, John joined us as our new EVP and CFO, and just six weeks ago, Steve Vobbe joined us to head up Sales and Marketing.

We also moved into a new state of the art facility that we call headquarters, equipped as an executive partner and client briefing center, with a fully equipped lab, R&D and operations center. We focused our cloud-based managed service offering as the growth accelerator. We've continued to invest in strategic partnerships in the UC and network operator space, along with open video and continued R&V-- R&D. And we've changed the way we operate through profitable focused products and services. In that we've implemented cost cuts in Q4 which immediately affected income results. We also accelerated the leverage and scale with service platform investments driven for development. And finally, we see a path to achieving greater value for our shareholders with increased market awareness.

So to recap today's call and presentation, we've announced another quarter of revenue growth driven by rapid growth in our cloud-based managed services which now make up for over 40% of our overall revenues in the quarter and growing. We generated positive cash from operations, made significant progress towards sustainable profitability. We're delivering on our strategic plans and continue to see strong pipeline of opportunities supporting our enhanced go-to-market strategy. And we're committed and focused on operating momentum and capitalizing on the Glowpoint position, to build an industry leader into the coming quarters and beyond. Thanks very much. Moderator, you could open up the call for any questions at this point.

Thank you. (Operator Instructions)

If there's no immediate questions on audio, we do have a couple questions that came in on the webcast that we'll attempt to -- can you scroll back up, please -- that we'll attempt to offer here, some answers. So, one of the questions are with the high cost of airfare and all very high travel costs, is Glowpoint realizing any increase in customer interest?

Great question. I think my response there would be, that there's a lot of conditions on a global basis that support video as an alternative to travel for sure. Some terrible things going on in the world right now considering some of the natural disasters there in Japan most recently. But generally speaking with high fuel prices and a true alternative to meeting face to face in the immersive technologies that the video industry offers these days, certainly has introduced a significant paradigm shift in the way businesses are conducting themselves. And our-- I can tell you that I don't have the exact number here, but our usage and adoption has dramatically increased on one of the first slides when I was discussing the overall state of the business in the intro, you saw some of the usage numbers represented in a bar chart that showed some significant growth. That is directly related to more conferences ultimately utilizing our cloud-based platform and we do see an increase there. So, I think the simple answer there is absolutely and there's many other conditions aside from fuel prices that are driving that behavior.

Thank you. We have a question coming from the audio portion of our line from [Mark Haslick]. Please state your question.

Yes. Joe on March 31 you anticipated the core revenue growth to go up 20% in 2010. It looks like, am I reading the numbers right, that we came in at half of that number? And I'm just curious if that, if that was the case, I'm just curious as to why you were granted and accepted a $10,000 raise. Can you shed a little light on that?

Yes, sure. So, the guidance that you're referring to last year where we said that we anticipated by the end of year reaching 20% growth levels, I would submit is well covered in the growth of our managed service -- our cloud-based managed services which grew in excess of 40% year-over-year. In terms of the impact on the overall revenues, you heard John mention that there was some decline in the network-related business. Our focus is absolutely targeted to the cloud-based managed services which since 2008 has made a dramatic increase or dramatic impact on Glowpoint as a business in general. And what I mean by that is the advent of Telepresence, the advent of Cisco on the scene and so on and so forth. And ultimately really bringing video communications to age, has represented a significant opportunity for Glowpoint who could have been a Company that perhaps was ahead of a market and there's some positive attributes to that statement and some negative. So in the end, I think our overall growth effort is certainly being disguised a bit, but cloud-based managed services certainly has exceeded our expectations on the growth front.

Okay. Thank you. Our next question is coming from the line of [Greg Kahn].

Yes, Joe, question concerning listing on a national exchange for the stock. When do you anticipate that to happen and which exchange do you look to go to?

You want to answer, John?

Yes, this is John. We're currently pursuing all of our avenues right now. We'd like to do it sooner rather than later. With the exchanges you don't always have control over the timing of such a thing. So, the short answer is we'd like to do it sooner rather than later. Now, in terms of which exchanges, there's a couple of them out there. There's obviously the NASDAQ and there's the NYSE Amex and we're leaving all of our options open at this point.

And along these same lines, I looked at today's trading and the volume is 2,000 shares. I just wonder what these national boards are going to say about the volume. Is it going to support being listed on a national exchange? How are they going to look at the volume?

Well, I think what you're seeing in terms of the volumes is one of the limitations that we have by being on-- as a bulletin board stock. There's a whole review process that the exchange will go through to examine our financials, examine our Company, examine our future and we're anticipating being able to meet all the criterias of getting listed on a national exchange. I think what you're seeing in terms of the current volume is, this being traded on a bulletin board.

There's other bulletin board stocks that trade with much higher volume than this, though.

Well, I think our average shares are trading about 14,000 I think is what our current average, somewhere around there.

That seems to be dropping tremendously.

Yes, I actually can't control the people buying and selling shares on a daily basis.

Granted, you can't.

All I can do is help try to get the operations and the financials in a position that the investors are going to find attractive at some point.

That's what's going to drive the volume, and to me if the interest isn't there because the profitability isn't there and even though you have 41% or 46% growth in cloud-managed services, the overall growth isn't there to pique investors either.

Well, the overall growth is being inhibited by the Connect business, which is being commoditized by -- every day. So, I think as we continue to focus on our managed services aspect of the business, and as managed services becomes a bigger piece of the overall Glowpoint business, then we'll start seeing better growth numbers.

Yes, and so-- look let me just finish off on the point, fair point and thank you for your observations there. John and I feel strongly about market awareness and ultimately telling the story to a larger audience and letting nature take its course in that regard and do, in fact, subscribe to results being a key factor relative to growth and profitability. And so you heard John talk about rhythm of the business and where we are now and where we're going, we certainly see that headed in the right direction and where it needs to be. And as far as the overall impact to revenues and some of the things you're hearing about the growth area of the business, look, it's fairly simple. I think you're hearing us say, it's already up to 41% of the overall revenues. Fully expect that to become the majority part of our revenues, at which point you won't see the impact to any sort of flat growth in any other revenues that we're maintaining.

Once again we're not exiting the business, it's a key components of what we do, but cloud-based managed services is where Glowpoint sees a significant demand, significant market projections and that's where we're focused and going after. So, results will, in fact, help and markets in my opinion do become efficient over time. And I fully anticipate Glowpoint to be in that spot. And it couldn't happen sooner, so we're with you in that sentiment.

Okay. And one more question, if you don't mind. Churn with customers, is there a big turnover, Joe, or much turnover?

No. I come from telecom industry where there's a much higher turnover than the industry we live in today. So, I would submit that we've never seen our churn exceed 2% from a customer perspective in this business, which is one of the very attractive parts of our model. So --

Yes, that sounds very good, 2%.

Yes. Yes, let's move on, see if anyone else has some questions. We have some other questions, but thank you very much.

Thank you. Our next question is coming from the line of [Jack Gilbert]. Please state your question.

Hi, Joe.

Hi, Jack.

Could you talk a little more about Avaya and a little more about the BroadSoft, on when do you think-- whether it's this quarter that we're in or next quarter, that we're going to see revenue from those two sources? Or some of the other new partners we have?

Sure, yes.So, one at a time here. So Avaya, and I felt compelled to mention it, it's one of our key focus areas and will absolutely become a significant part of the discussion here. Unfortunately, you heard me mention that further details will be disclosed in the coming months. And that's the status we're at there. So, I can assure you that there will be further detail disclosed there. We have, in fact, engaged with Avaya in a commercial agreement such that we're partnering, but that's to the extent I could share those details, we are working out further publicizing those things and all. So, I apologize I can't give you any more, fully anticipate that becoming a key part of our growth strategy, though.

So, as far as BroadSoft is concerned on the second part. Yes, so BroadSoft, here's how I-- at the end of the day strategic partnerships, they happen. They develop in phases and typically you engage and you agree upon commercials and you ultimately tie up and start the relationship and from there you develop that relationship which develops into pipeline and then ultimately develops into closed business and then affects your financial results and all. What I could tell you is that BroadSoft is rapidly developing. And we have a very nice pipeline developed already and developing, and I fully anticipate to see that to become very productive for both Companies in the coming months, not quarters or years.

On stage 4 on BroadSoft.

There you go, using that -- (laughter.)

I got it. (Laughter) Okay. Thanks, Joe.

No problem. Thanks.

(Operator Instructions) Mr. Laezza, there seems to be no further questions at this time.

Yes, okay, and I apologize, folks. It looks like we might have had some other questions come in on the webcast, but we're having some what looks to be technical difficulties. So, if there's anything we could recover from there and we can answer them, we will, but we're not able to see some of those right now. So, I appreciate everyone joining on behalf of myself and the Management team here at Glowpoint. We look forward to the coming months and the coming quarters and would like to thank everyone again for your participation in the call today. And we, of course, appreciate all your continued support. Thanks very much.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.