Oblong Inc (OBLG) 2011 Q4 法說會逐字稿

Good afternoon, everyone. Welcome to Glowpoint's fourth-quarter and full-year 2011 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, CEO and President, Joe Laezza; and CFO and EVP, John McGovern; along with SVP, Corporate Development and Strategy, Tolga Sakman. 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.

Thank you, Jessie. This partial discussion of the statements of financial condition and the 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 full year ended December 31, 2011, 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 purposes of Safe Harbor provisions 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 a result 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 Regulation G. I'll now turn the call over to Joe.

Thank you, John. Welcome, everyone, and thanks for joining us. The format of our call today consists of opening remarks following -- followed by John discussing our operating results. Tolga will provide an update on our market, and finally, I will provide some more detail on our current focus for 2012.

So let me get started by saying that the video communications industry continued to evolve in 2011, and here in Glowpoint, we made a number of changes as well. In doing, so we accomplished a great deal this past year and now have a number of new Management members on the team, our product and service portfolio has been strengthened, we've enhanced our corporate image and branding, we are profitable and have good operating liquidity, and our stock now trades on the NYSE AMEX. Simply put, we set out to further position for leadership in this dynamic industry, and I feel good about the progress we've made, and I'm very excited for our prospects in 2012.

Our cloud managed service business grew in excess of 20% for the year and now represents the majority of our revenue mix. This has been the primary driver of profitability for Glowpoint, and we will continue to aggressively invest in sales and marketing to accelerate our growth over the long term. Our service offerings and strategy are well aligned with the changing landscape of our industry and partner communities. Our core strategy is paying off, but we still have more work to do as the Company pursues its next stage of growth. Some of the existing go-to-market channels for Glowpoint were slower than expected over the past year, while others came on strong. Glowpoint is working on some exciting new approaches to market with our existing partners that we think will improve that trend.

Additionally, we are extremely encouraged with the recent activity with some new partners, such as Sabre Virtual Meetings and Stryker Communications. We anticipate these dynamics to drive further growth, and we expect to see some impact from these new initiatives in the next few months, with more meaningful impact being reflected in the third and fourth quarter of this year. In fact, our current sales pipeline is larger than it's been in over a year, so we feel comfortable with the current investment we're making in sales and marketing. In addition, we will continue to invest in our development efforts of the Glowpoint OpenVideo cloud platform and suite of services and anticipate making further marketing-leading announcements about our unique platform and services in the coming weeks. With that, I'm going to turn the call back over to John.

Thanks, Joe. As Joe said, we accomplished a lot in 2011 amid significant change in our industry. With all of this change, we remain focused on operational discipline. In the fourth quarter, we produced the fourth consecutive quarter of positive net income and the fifth consecutive quarter of positive adjusted EBITDA. We also had positive working capital, positive cash flow, and improvements in essentially all of the financial metrics that we measure. We had a good year, and in the face of change, created an operating environment that is sound, with flexibility to invest more aggressively as we secure our leadership position in an industry that is volleying at a rapid pace.

So let's discuss the financials in more detail. Cloud-based managed services revenue, reported as managed services combined, grew 18% to $3.5 million, and 22% to $12.8 million for the fourth quarter and full year, respectively. These revenues are now the largest component of our fourth-quarter revenue mix and represent 49% of the total quarterly revenue. Network services declined 17% for both the fourth quarter and full year to $3.2 million and $13.4 million, respectively. Other revenues, which include our professional services and other one-time event services, were $345,000 for the quarter and $1.6 million for the full year.

The expected shift in revenues to cloud managed services is important to Glowpoint, in that it establishes a trend where our highest-growth and gross-margin business now makes up a majority of our revenue. Additionally, the increase in managed services business affords greater utilization of our hosted infrastructure and technology, making this revenue stream the primary driver of our income growth. The commoditized network services business carries a variable cost associated with the purchasing and reselling of connectivity into end-customer locations, also known as local loops. That said, networking will always be a part of the Glowpoint revenue mix, driven by new connectivity needs to connect and peer with Glowpoint's OpenVideo cloud, which has not only hosted infrastructure, but also represents the largest business-to-business exchange in the world.

In 2011, operating expenses were $27.3 million, down $2.9 million when compared to $30.2 million in 2010. Operating expenses for the fourth quarter were $6.7 million, which is down by $600,000 from the fourth quarter of 2010 expenses of $7.3 million. Part of the change Joe spoke about earlier was to align Glowpoint's infrastructure to effectively manage the growth in our managed services business. The outcome of that activity was a lower expense level across the business and a key contributor to our consecutive quarters of profitability. However, in addition to being profitable, we are committed to revenue growth, and as such, we've begun to invest further in sales, marketing, and development. In the early part of 2012, you can expect to see a modest increase in expenses associated with these investments, with an anticipated payoff in the third and fourth quarters.

Net income for the quarter and the full year was $284,000 and $369,000, respectively. This was an increase of over $700,000 and $3 million, as compared to the quarter and full year of 2010, respectively. Adjusted EBITDA for the quarter and full year was $825,000 and $2.5 million, respectively. This represents an increase of $339,000, as compared to the fourth quarter of 2010, and $2.6 million increase compared to the full year of 2010. Net cash provided by operating activities was $635,000 for the fourth quarter, compared to $119,000 in the same quarter last year, a $516,000 improvement. Cash from operations for the full year improved by $2.2 million to $752,000, as compared to a loss of over $1.4 million in 2010. Glowpoint ended the year with a cash balance of over $1.8 million.

2011, from my perspective, was a good year for Glowpoint, and we have established a strong foundation to invest and benefit from sales and marketing dollars. On a year-over-year basis, managed services grew over $2.3 million. Expenses declined $2.8 million. Net income improved by over $3 million. Adjusted EBITDA grew by $2.6 million. EPS improved by $0.21 a share, and cash from operations increased by $2.2 million. These are material improvements in the operating results, and I'm comfortable with taking a more aggressive approach to secure additional business and get the top line moving.

The video managed services market continues to be one of the hottest markets in technology today. I believe Glowpoint is well positioned. We have the right strategy. We have access to the appropriate resources required to pursue our next stage of growth. Based on the investments currently being made related to some of our new business opportunities in the pipeline, I believe 1Q will be a bit slower on the growth and profitability front, with sequential momentum starting in the second quarter and increasing in the third and fourth quarters. I'm bullish on 2012, and with the appropriate execution of our key initiatives, I remain comfortable with the full-year guidance we have previously provided. With that, I'm going to turn the call over to Tolga.

Thanks, John. So you just heard from Joe and John regarding our operating results. I'm very excited about what we have accomplished in 2011 and our prospects into 2012. With that said, I'd like to briefly discuss the state of our market, which complements or corporate strategy. As mentioned, our industry is evolving, and the landscape is changing. In 2011, the unified communications and media communications industries continued to consolidate into one, while moving towards a cloud-based consumption model. Now HP is out of the video market, with Polycom purchasing their Halo business, video business unit this past summer, leaving Cisco and Polycom as the two major players in the video technology space, among the other larger players in the unified communications market.

The point here is that the video conferencing and telepresence in this [view] of the past is merging into a much larger industry, and the opportunity for cloud-based delivery is growing. The net result is a larger ecosystem in the video industry, along with a largely underpenetrated opportunity for services. The drivers leading demand for services are more than just the enterprise-grade video technologies. The rapid changes in business trends are being driven by manufacturers, including the importance of efficiencies, both in operating and in environmental responsibility, along with globalization. So this, combined with the rapid introduction of new collaboration technologies and tools with video at the heart of it, drives a new way of doing business for enterprises across the globe.

In addition, the democratization of video continues with rapid introduction of two-way interactive video capabilities inside consumer technology end devices, such as iPads and iPhones, coupled with the bring your own device, or BYOD, movement across the enterprise. This drives the greater demand for cloud managed video services. The real question is what does this all mean for Glowpoint? So there's a large install base of enterprise-grade video equipment, which is largely underpenetrated from a managed-services perspective, combined with a growing shift in deployment options for businesses to consider. You see, there are four deployment models today for enterprise video. The vast majority of these existing deployments are powered by on-premise infrastructures, and they are managed internally by the IT department.

As the number of endpoints in the enterprise is going from hundreds to tens of thousands with these software-based endpoints on mobile PCs and iPads, the complexity of the deployment increases. As we talk to our customers, we see a dramatic shift from on-premise deployment source to cloud-based management options, and this is exactly what we are referring to when we talk about the underpenetrated nature of this market for managed services. According to recent research from Gartner, the managed services industry associated with enterprise telepresence and video conferencing is expected to grow over the next four years at a compound annual growth rate of 38%. So this means Glowpoint's service offerings are validated and well positioned. We maintain the largest cloud-based video platform in the world and represent the best option for enterprises to move from traditional on-premise deployment and management models to a more cloud-based consumption model. With that, I'm going to turn it back to Joe.

Thank you, Tolga. So before closing, I'd like to provide a more detailed update on Glowpoint's core initiatives and strategic focus. As mentioned, over the past year, Glowpoint has invested in a number of initiatives focused on securing a sound growth strategy and enhancing scale through operating efficiencies. More specifically, we added a number of key unified communications industry veterans to the Management team, and along with this, we've simplified and refined our strategy. We enhanced the Company image and streamlined our service offerings. We also secured new partnerships in this past year, such as Avaya, and expect other exciting new ones to further solidify our go-to-market strategy into 2012. In addition to this, we enhanced our OpenVideo cloud platform with additional high-margin, self-use services.

For 2012, our core strategic initiatives consist of enhancing our go-to-market strategy with strategic partners, developing and introducing new services with an emphasis on business-to-business communications, and we will continue to operate -- to continue to enhance our operating efficiencies through automation of our service-delivery platforms. So let's discuss these initiatives in a bit more detail. Recently, we announced a number of key strategic partnerships, including Sabre Virtual Meetings, Stryker Communications, and IBM Datatrend. These partnerships represent an innovative approach to market for Glowpoint. For example, we are working with Stryker Communications to bring cloud-delivered video conferencing capabilities into operating rooms for clinical-education applications. Given Stryker's dominant position in the integrated operating-room medical-device segment, I'm very excited about the potential opportunity this new channel represents for us.

As for existing partners, such as Avaya, Polycom, Tata Communications, and BroadSoft, they continue to evolve and develop as well. On that front, one example is that Polycom recently rolled out our new Glowpoint remote-monitoring services for availability through their sales organization, targeting their elite customers. We expect further exciting developments in the near future as we invest in new sales structure to provide deeper coverage with our partners and customers. You heard a couple times today we are investing in sales and marketing. This means we will be expanding our high-touch sales force while investing in programs to strengthen our channels. We've organized our teams functionally and geographically to better align with our partners and end-user customers. This provides us with dedicated resources for the critical touch points in our go-to-market strategy. Overall, I expect our initiatives with new and existing partners, along with our new sales structure, to drive our next stage of growth, and in fact, we're already seeing indication of a growing sales pipeline.

On the product and service development front, we further expanded our OpenVideo platform and service offerings in 2011, and in the third quarter, we launched our new offerings designed to address all form factors of business-grade video conferencing and telepresence endpoints. Prior to this, Glowpoint's services were primarily geared toward the higher-end immersive telepresence systems. With this significant launch, the addressable market for our services has increased from tens of thousands of immersive endpoints to the over 3 million telepresence and video conferencing endpoints in use today, along with the video and network infrastructure they rely upon.

For 2012, our main product development focus is on enhancing our existing B2B platform. As we've stated in the past, the majority of video calls today take place within the confines of the enterprise for a number of reasons, ranging from cross-vendor interoperability challenges, network-peering challenges, and a lack of universal dial plans. With over 40,000 video systems certified on it, Glowpoint's OpenVideo B2B exchange platform is actually the largest in the world. We are in the process of further enabling enterprise users to conduct intercompany scheduling and calling, with the added benefit of key features, such as an opt-in global B2B directory. This will give enterprise users the ability to utilize the power of video across organizations like never before. We believe B2B communications is one of the next growth opportunities, and with our product development focus, Glowpoint is well positioned to further extend its lead in this segment.

So before closing, I'd like to recap. 2011 was a good year for us. We exited the year with sound operating results, important structural changes, and our common stock uplisted to a national exchange. In 2012, we see a strong market for cloud managed video services. We will invest further in sales and marketing to enhance our go-to-market strategy with our existing and new partners. We will enhance our OpenVideo platform and be introducing expanded offerings into the market, and once again, we will continue to enhance operating efficiencies. And finally, we will continue into 2012 with a strong focus on profitable growth and remain committed to maintaining our operating momentum. Thank you very much. This concludes the formal presentation portion of the call, and I'll ask the moderator to now open up the call for questions. Moderator?

Thank you. At this time, we will be conducting a question-and-answer session over the telephone. (Operator Instructions) It appears there are no questions over the telephone at this time.

Okay. Thank you. We do -- it looks like we have a question or two here online. One of the first questions is did Sidoti research weight GLOW neutral last month, and the answer to that question is yes, they did. The second question has to do with Glowpoint's revenue mix, and what are the percentage of the revenues derived directly from your sales force compared to the revenue from white-labeled revenues? That's a good question. As far as our revenues stimulated through our indirect channels, I'll answer this, this way. They represent a significant portion. New sales, it's in excess of 80% of new business that we secure come through our indirect channels. Now that being said, Glowpoint ultimately delivers everything indirect.

Our high-touch sales force is designed to nurture and grow business customers that ultimately engage with Glowpoint, whether that's direct or indirect, through our white-label partners. So we represent ourselves throughout the organization from sales through to billing on behalf of many of our partners. The percent directly related to white-labeled revenues is fairly significant. We're currently engaged with companies like Polycom, Avaya, and Tata Communications, three largest channels in this regard. They represent a significant portion of our revenues. I don't believe we've disclosed the actual percentage, but it's a very productive channel for us.

I don't believe there's any additional online questions. I'd like to once again thank everyone who joined our call today, and on behalf of the entire Management team here at Glowpoint, I look forward to the coming quarters and would like to thank you for the participation on our call today, and we appreciate your continued support. That concludes our call. Thank you.