Glowpoint, Inc. — Q1 2017 Form 10-Q
Entity note: The supplied filing is for Glowpoint, Inc., not Taoweave, Inc. It covers the quarter ended March 31, 2017; financial statements are unaudited.
Business context and financial results
Glowpoint provides managed video-collaboration and network services. Revenue continued to decline amid customer attrition, reduced demand, competition, and pricing pressure.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $4.080 million | $5.518 million |
| Gross profit, calculated as revenue less cost of revenue | $1.632 million; 40.0% margin | $2.059 million; 37.3% margin |
| Operating loss | $270,000 | $295,000 |
| Net loss | $668,000 | $712,000 |
| Net loss attributable to common stockholders | $671,000 | $715,000 |
| Adjusted EBITDA (non-GAAP) | $369,000 | $621,000 |
| Net cash from operating activities | $18,000 | $358,000 |
Basic and diluted loss per share were $0.02 in both periods. Cost of revenue was 60% of revenue, versus 63% a year earlier. Interest and other expense was $371,000. Cash interest paid was $266,000.
Balance sheet, debt, and liquidity
- At March 31, 2017, cash was $1.110 million, including $18,000 of restricted cash; working capital deficit was $8.658 million.
- Total liabilities were $12.703 million and stockholders’ equity was $3.409 million. Debt carrying value was $10.678 million, all classified as current. The filing reports $9.0 million principal outstanding on the Main Street loan and $1.785 million on the SRS note.
- Main Street debt bears 12% interest and matures October 2018, subject to potential acceleration. The SRS note bears 15% interest and matures July 6, 2017; accrued SRS interest was $653,000 at quarter-end.
- Cash declined $30,000 during the quarter. Operating cash flow of $18,000 less $36,000 of investing outflows and $12,000 of financing outflows reconciled to the decrease.
Changes, outlook, and risks
- Revenue fell $1.438 million, or 26%. Video-collaboration revenue declined 18%, network-services revenue 35%, and professional and other services revenue 42%. Management attributed declines to lower service levels or prices, migration from meeting suites to desktop/mobile video, customer losses, and weaker demand.
- Operating expenses fell, including lower sales and marketing, general and administrative, and depreciation and amortization costs; research and development was unchanged. Despite lower operating expenses and an improved gross margin, Adjusted EBITDA decreased from $621,000 to $369,000.
- Management expects the year-over-year revenue decline to continue through the remainder of 2017. Sales cycles are typically six to eighteen months; the company cited limited resources to invest in sales and marketing while pursuing new customers and next-generation offerings. No quantified revenue or earnings guidance was provided.
- The company breached Main Street’s debt-to-Adjusted-EBITDA covenant at multiple 2016 quarter-ends and March 31, 2017, and its fixed-charge-coverage covenant at Q3 and Q4 2016 and March 31, 2017. No waiver had been provided; the lender may accelerate the debt. Management expects further covenant breaches in 2017 and 2018.
- Management stated it expects insufficient resources to service debt and fund operations for at least the next 12 months, and that debt restructuring or a capital infusion is necessary. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern. Potential remedies include refinancing, debt restructuring or conversion, and an equity raise; success is not assured.
- The largest customer filed for Chapter 11 in January 2017. It had paid amounts due as of filing, and services continued, but the bankruptcy estate had not decided whether to assume or reject the contract. Two customers represented 21% and 16% of Q1 revenue.
- Operating leases require $645,000 of future minimum payments as of March 31, 2017. Management said it expected to meet supplier commercial commitments. No legal proceedings were listed; the filing reported no material risk-factor changes from the 2016 Form 10-K.
Important facts for investors to verify
- Whether Main Street waives or otherwise resolves existing covenant defaults, and whether it accelerates the secured debt.
- How the SRS note and accrued interest are addressed at its July 6, 2017 maturity, given subordination and repayment restrictions.
- Whether Glowpoint secures a restructuring or new capital sufficient to address its stated 12-month funding shortfall and going-concern uncertainty.
- Whether the Chapter 11 customer’s contract is assumed or rejected, and whether customer concentration or attrition worsens.
- Whether revenue stabilizes and planned sales and product investments can be funded despite limited liquidity.