Business context and reporting period
Oblong, Inc. (ticker OBLG) filed this unaudited Form 10-Q for the quarter ended March 31, 2021. The filing identifies the registrant as Oblong, Inc.; the request metadata names Taoweave, Inc. The company operates two segments: Glowpoint, providing managed video collaboration and network services, and Oblong Industries, providing visual collaboration products and services.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $1.918 million | $5.328 million |
| Gross profit / margin | $0.628 million / 33% | $2.954 million / 55% |
| Operating loss | $3.411 million | $2.977 million |
| Net loss | $3.433 million | $3.129 million |
| Net loss attributable to common stockholders / diluted loss per share | $4.100 million / $0.23 | $3.133 million / $0.60 |
| Cash used in operating activities | $1.235 million | $2.536 million |
At March 31, 2021, cash was $3.964 million, restricted cash was $0.061 million, working capital was $1.689 million, and total debt was $2.417 million, all represented by the current portion of the PPP loan. Total liabilities were $7.740 million and stockholders’ equity was $18.931 million. The filing reports no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Revenue declined 64% year over year. Glowpoint revenue fell to $1.195 million from $2.045 million; Oblong Industries revenue fell to $0.723 million from $3.283 million.
- Glowpoint video collaboration revenue dropped 72%, mainly due to lower service levels or pricing from existing customers and customer losses. Network services declined 5% amid attrition, competitive pressure, and pricing pressure.
- Oblong Industries product revenue declined 70%, which management attributed primarily to COVID-related customer implementation delays. Professional services revenue was zero after a former customer ended the work in 2020; management does not expect professional-services revenue in 2021 or thereafter. Licensing revenue fell 90% after a former customer terminated its license.
- Gross margin fell to 33% from 55%. Lower revenue and gross profit contributed to a larger operating loss, partly offset by lower research and development and sales and marketing expenses.
- Operating cash use improved year over year. Accounts receivable decreased to $1.779 million from $3.166 million, while inventory increased to $1.494 million from $0.920 million.
- Preferred shares converted into common stock in February 2021. Common shares issued increased from 7.9 million at December 31, 2020 to 26.7 million at March 31, 2021; 26.6 million were outstanding. The filing reports an additional $0.300 million charge associated with inducing conversion of Series A-2 preferred stock.
Outlook, risks, and contingencies
- Going concern: Management said its current projections indicate the company will not have sufficient resources to fund operations for the 12 months following the filing. The filing states that substantial doubt exists about the company’s ability to continue as a going concern and that additional debt or equity capital is needed; there is no assurance it can be raised on acceptable terms.
- PPP loan: The $2.417 million loan bears 1% interest. A forgiveness application was submitted in May 2021 and was under lender review. Forgiveness is not assured; if not forgiven, payments are expected to begin after the forgiveness determination.
- Business outlook: Management expects Glowpoint’s revenue declines to continue and is considering opportunities to divest some or all of that business. It expects further product development and sales and marketing investment for Oblong Industries, whose development and commercialization costs are expected to exceed its revenue for the foreseeable future. No quantified revenue or earnings guidance is provided.
- Key risks: COVID-19-related order delays and customer budget changes; customer attrition and concentration; competition and pricing pressure; continued losses and financing needs; and the ability to develop and commercialize products. One customer contributed 36% of Q1 2021 revenue, and one customer represented 36% of receivables at quarter-end.
- The company recorded $0.031 million of property and equipment impairment charges in Q1 2021, versus $0.541 million of goodwill impairment in Q1 2020. Management reported no material legal proceedings and no material changes to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- Whether the PPP loan was forgiven, in whole or in part, and the resulting repayment obligations.
- The company’s available financing, cash runway, and any subsequent capital raises or material changes to its going-concern assessment.
- Whether COVID-related implementation delays eased and whether revenue, gross margin, and customer retention improved after Q1.
- The status of any planned Glowpoint divestiture and the performance and funding needs of Oblong Industries’ product-development initiatives.
- The impact of preferred-stock conversions and other potential dilution, including outstanding warrants and options.