Glowpoint, Inc. — Form 10-Q for the quarter ended September 30, 2016
Entity note: The request metadata names Taoweave, Inc., but the supplied filing is for Glowpoint, Inc. This summary reflects the filing provided.
Business context and reporting period
Glowpoint provides managed video-collaboration and network services to enterprise and other customers. The filing reports the three and nine months ended September 30, 2016, compared with the same 2015 periods. The company operates as one segment.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $4.344 million | $6.160 million | $14.950 million | $19.851 million |
| Operating loss | $1.288 million | $0.337 million | $1.778 million | $0.109 million |
| Net loss | $1.705 million | $0.714 million | $3.021 million | $1.217 million |
| Adjusted EBITDA (non-GAAP) | $0.161 million | $0.444 million | $1.374 million | $2.307 million |
| Operating cash flow | Not separately stated for the quarter | $0.265 million | $1.382 million |
Revenue fell about 29% in Q3 and 25% for the nine-month period. Gross profit before depreciation and amortization was $1.735 million in Q3 and $5.763 million for the nine months; corresponding margins were approximately 40% and 39%. The nine-month margin was down from approximately 43% in 2015. Basic and diluted loss per share was $0.05 for Q3 and $0.09 for the nine months, versus $0.02 and $0.03, respectively.
At September 30, cash was $1.343 million, including $51,000 restricted, and working capital was negative $8.644 million. Total assets were $17.111 million, total liabilities $13.041 million, and stockholders’ equity $4.070 million. Debt carrying value was $10.642 million, all classified as current because of loan defaults and potential acceleration. The company reported $9.0 million outstanding under the Main Street term loan and $1.785 million principal under the SRS note. Nine-month investing cash use was $0.273 million and financing cash use was $0.413 million. Interest paid was $0.841 million.
Material changes and unusual items
- Video-collaboration revenue declined to $2.494 million for Q3 and $8.403 million for the nine months; network-services revenue declined to $1.805 million and $6.168 million, respectively. Management attributed declines to customer attrition, competition and pricing pressure, and lower demand for video meeting suites as desktop and mobile products gained use.
- Q3 and nine-month impairment charges were $0.605 million and $0.630 million, primarily from a $0.600 million goodwill impairment after revenue and cash-flow declines and loan covenant defaults.
- General and administrative expense included increased costs related to UTC litigation. The September 30 settlement required a $325,000 cash payment and issuance of 600,000 common shares, valued at $168,000 and recorded as expense and a liability at quarter-end. The shares were issued October 14; the parties dismissed and released their claims.
- On October 17, 2016, the $2.0 million Main Street revolving facility matured, ending access to it. On November 2, the company entered retention-bonus agreements with certain key employees, including named executives, with payments conditional on continued employment through applicable dates.
Outlook, risks and contingencies
Management expected the year-over-year revenue decline to continue through the rest of 2016 and into 2017, citing competitive conditions and limited resources for sales and marketing. It noted enterprise sales cycles typically run six to eighteen months and said timing of any revenue stabilization or growth was uncertain. The company planned to continue cost adjustments and pursue new customers and next-generation offerings.
Glowpoint breached its debt-to-Adjusted-EBITDA covenant at June 30 and September 30, 2016, and its fixed-charge-coverage covenant at September 30. The lender had not waived the defaults and could accelerate the debt. Management expected further covenant breaches and was exploring covenant renegotiation, restructuring or refinancing, potentially with debt-to-equity conversion and a capital raise. The SRS note matured July 6, 2017, bears 15% interest, and had $478,000 accrued interest. Management said it expected insufficient resources to service debt and fund operations for at least the next twelve months following filing, and explicitly stated that these conditions raised substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no adjustments for that uncertainty.
Other risks include further customer and revenue attrition, dependence on major customers (two customers were 17% and 13% of Q3 revenue), and possible additional asset impairments. The filing reported no material changes to the risk factors in the 2015 Form 10-K. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied filing is Glowpoint, Inc., not Taoweave, Inc.
- Check for subsequent lender waivers, acceleration, covenant amendments, refinancing, restructuring or capital raising, and the status of the expired revolving facility.
- Assess the company’s cash runway, ability to meet the July 2017 SRS maturity, and basis for management’s going-concern assessment.
- Track revenue trends, customer concentration and whether cost reductions or new sales stabilize Adjusted EBITDA and operating cash flow.
- Verify the UTC settlement share issuance and any obligations under the new services agreement, as well as retention-bonus payments and potential dilution from outstanding equity awards.