Oblong, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023. The filing identifies the registrant as Oblong, Inc. (Nasdaq: OBLG), not Taoweave, Inc. Financial amounts below are in U.S. dollars; “m” means millions.
Business context
Oblong provides Mezzanine visual-collaboration products and managed services for video collaboration and network solutions. It reports two segments: Collaboration Products and Managed Services. Results are unaudited.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0.956m | $1.333m | $1.994m | $2.865m |
| Gross profit | $0.122m | $0.407m | $0.398m | $0.906m |
| Gross margin | 13% | 31% | 20% | 32% |
| Operating loss | $1.091m | $9.033m | $2.294m | $13.555m |
| Net loss | $1.049m | $9.033m | $2.268m | $13.572m |
| Net loss attributable to common stockholders | $1.949m | $9.033m | $3.193m | $13.572m |
- Revenue declined 28% in Q2 and 30% in the first half year over year. The smaller operating losses largely reflect lower expenses, including substantially lower prior-year impairment charges—not a return to profitability.
- Q2 Managed Services revenue was $0.640m, down from $0.810m; Collaboration Products revenue was $0.316m, down from $0.523m. Collaboration Products had a Q2 gross loss of $0.088m and a negative 28% gross margin. The company attributed the segment’s margin deterioration in part to inventory obsolescence reserves and personnel costs.
- For the six months, operating cash use was $2.182m, compared with $3.911m in 2022. Financing provided $5.969m, including private-placement proceeds and warrant exercises; cash increased by $3.787m to $6.872m.
- At June 30, cash was $6.872m, working capital $7.153m, total assets $8.873m, and total liabilities $1.258m. Liabilities included operating lease obligations and deferred revenue; the balance sheet lists no borrowings.
- Management said existing cash should fund operations and working capital for at least 12 months from the filing date, but said additional capital will be needed over the longer term. No numerical revenue or earnings guidance was provided.
Material changes, financing and unusual items
- In March, the company completed a private placement of Series F preferred stock and warrants. It reported $5.435m of net proceeds for the first half, including funds released from escrow after stockholder approval. April warrant exercises provided a further $0.534m net.
- Series F preferred stock carries a 9% annual dividend, potentially 20% upon specified triggering events, and has conversion-price adjustment provisions. A warrant-exercise inducement and preferred dividends increased the loss attributable to common stockholders; Q2 included $0.751m for the induced warrant conversion and $0.149m of preferred dividends.
- The March financing also issued common warrants to purchase up to 4.137m shares at an initial $1.71 exercise price. Series F shares and warrants could add substantial shares if converted or exercised; the filing reports these potential shares as antidilutive for loss-per-share calculations.
- A $0.400m insurance recovery for inventory stolen in 2022 was recorded as an offset to casualty loss in Q2 and received July 21, 2023. The 2023 first-half impairment charge was $0.002m, versus $7.546m in the comparable 2022 period.
- Research and development expense was sharply lower after the company ceased most R&D activity in late 2022. Management also cited reduced headcount and marketing spend. A $0.380m immediately vested RSU award to board members contributed to higher Q2 general and administrative expense.
- The company completed a 1-for-15 reverse stock split in January 2023. A June exchange agreement with Foundry-affiliated holders exchanging 406,776 common shares for pre-funded warrants was completed in July and was not recorded at June 30.
Outlook, risks and contingencies
- Management expects Managed Services revenue declines to continue, citing customer attrition, lower demand, competition and pricing pressure. Collaboration Products sales remain affected by delayed purchasing decisions as customers adapt to post-pandemic workplace patterns.
- Revenue is concentrated: Customer A accounted for 56% of Q2 revenue and 54% of first-half revenue. At June 30, Customer A represented 58% of accounts receivable. Loss of a major customer could materially affect results.
- Management says long-term funding may be required for operations and growth investments, and warns there is no assurance that additional debt or equity capital will be available on acceptable terms. Further revenue, cash-flow or market-capitalization declines could trigger additional impairment charges.
- The filing reports no legal proceedings believed likely to have a material adverse effect, no off-balance-sheet arrangements, and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective as of June 30.
Important facts for investors to verify
- Whether revenue declines and customer attrition continue, particularly in Managed Services and Collaboration Products.
- Cash burn relative to the stated 12-month liquidity outlook and the company’s longer-term need for additional capital.
- Potential dilution and economic terms of Series F preferred stock, preferred warrants, common warrants and the Foundry exchange warrants.
- Whether customer concentration, inventory obsolescence and low or negative Collaboration Products margins worsen.
- Timing and accounting treatment of the July insurance recovery and the Foundry share-for-warrant exchange.