Glowpoint, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015; unaudited. The filing identifies the registrant as Glowpoint, Inc. The company provides video collaboration and network services.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $6.160 million | $7.958 million | $19.851 million | $24.407 million |
| Operating income (loss) | $(0.337) million | $0.556 million | $(0.109) million | $0.435 million |
| Net income (loss) | $(0.714) million | $0.198 million | $(1.217) million | $(0.635) million |
| Net loss per common share | $(0.02) | Income of $0.01 | $(0.03) | $(0.02) |
| Adjusted EBITDA (non-GAAP) | $0.444 million | $1.362 million | $2.307 million | $3.421 million |
Revenue fell 22.6% in the quarter and 18.7% year to date. Cost of revenue excluding depreciation and amortization was 60% of revenue in Q3 versus 55% a year earlier, implying gross margin of about 40% versus 45%. For the nine-month periods, the corresponding cost ratios were 57% and 58% (gross margins about 43% and 42%).
Video collaboration revenue was $3.308 million for Q3 and $11.360 million year to date; network services revenue was $2.498 million and $7.823 million, respectively. The remaining revenue was professional and other services.
Cash, liquidity and debt
- At September 30, cash was $1.725 million, including $0.116 million of restricted cash; working capital was $2.319 million. Current assets were $5.394 million and current liabilities $3.075 million.
- Nine-month operating cash flow was $1.382 million, compared with $1.560 million in 2014. Investing activities used $1.054 million, primarily for equipment and capitalized software; financing activities used $0.541 million. Cash declined $0.213 million from year-end 2014.
- Total borrowings were $10.806 million: $9.000 million under the Main Street term loan, $0.021 million under its revolver and $1.785 million under the SRS note. The Main Street term loan bears 12% interest and matures October 2018; the revolver bears 8% and matures October 2016. The SRS note bears 15% after its amendment and matures July 2017.
- The company reported compliance with required debt covenants. It cited $1.979 million of revolver availability and up to $2.000 million of additional term-loan availability subject to lender approval. Management said it expected to fund operations and service debt for at least 12 months after filing, while warning that access to credit or future equity capital was not assured.
Changes, outlook and risks
- Management attributed much of the video collaboration decline to a former largest customer transitioning away from the service; that customer ceased to be a customer on June 30, 2015. Lower video meeting-suite demand amid a shift to desktop and mobile products, other customer attrition, and reduced network-services demand also weighed on revenue. Management expected these trends to continue in the near term pending customer transitions and new offerings.
- Operating expenses declined overall year to date, including lower sales and marketing costs, but research and development spending increased as the company invested in new services and infrastructure. Q3 operating results moved from income to loss, and the nine-month net loss widened.
- Management said it planned to adjust costs to partly offset legacy-service revenue declines while continuing investment in next-generation offerings. The filing provides no specific revenue or earnings guidance.
- UTC Associates sued over an alleged unpaid technology-services arrangement, seeking $1.107 million for amounts allegedly due and alleging a further $1.000 million in lost-revenue damages. Glowpoint disputed the claims and intended to defend itself; the filing does not state a clear estimate of any potential loss.
- Customer concentration is material: three customers represented 13%, 10% and 10% of Q3 revenue. The company cautioned that losing another major customer without replacement could materially harm results. Other notable items include $0.138 million of nine-month impairment charges, largely related to former office locations, and 2.855 million unvested restricted stock units outstanding.
Important facts for investors to verify
- Whether customer attrition stabilizes and new offerings can replace declining legacy-service revenue.
- Actual cash generation, capital spending and access to the Main Street credit availability; note that some borrowing capacity requires lender approval.
- Debt-service capacity under the high-interest facilities, future covenant compliance and the terms and timing of SRS note payments.
- Developments and potential financial exposure in the UTC litigation, for which the company disputes liability.
- Customer concentration and potential dilution from outstanding restricted stock units and other equity awards.