Exhibit 99.2
Investor Update Script
Introduction
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Bob Petrie
Hello, I am Bob Petrie and I am the Vice President of Marketing and Strategic
Development at Globix. Welcome to our first Investor briefing of 2004. On
today's call we will provide an overview of Globix covering the past two years
and a review of our Q2 2004 financial results. In order to accommodate questions
you may have, we will open the call up to answer them at the conclusion of the
discussion.
Just a quick reminder for everyone, the information disclosed on this call may
contain forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934. These statements are based on current
information and expectations and are subject to risks and uncertainties that
could cause the company's actual results to differ materially from those
expressed or implied in the forward-looking statements. These risks and
uncertainties include: the company's ability to retain existing customers and
attract new customers; its ability to match its operating cost structure with
revenue to achieve positive cash flow; the sufficiency of existing cash and cash
flow to complete the company's business plan and fund its working capital
requirements; risks associated with making acquisitions; restrictions on our
financial and operating flexibility due to the terms of our existing
indebtedness and our high degree of leverage; the insolvency of vendors and
other parties critical to the company's business; the company's existing debt
obligations and history of operating losses; its ability to integrate, operate
and upgrade or downgrade its network; the company's ability to recruit and
retain qualified personnel needed to staff its operations; potential market or
technological changes that could render the company's products or services
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obsolete; changes in the regulatory environment; and other changes that are
discussed in the company's Annual Report on Form 10-K and other documents that
the company files with the Securities and Exchange Commission.
Our speakers today will be Pete Stevenson, CEO of Globix and Bob Dennerlein, our
Chief Financial Officer.
Pete joined Globix as President and Chief Executive Officer in April 2002 and is
a member of our board of directors. Pete has more than 22 years of experience in
the communications industry including time spent at Bell Atlantic, start-up
companies and company turn-arounds, domestically and internationally.
Management introductions
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Pete Stevenson
Thanks Bob. Good afternoon and welcome everyone, thank you for joining us today
on what is the first of our quarterly investor updates. As Bob said, it has been
a while since you've heard from us so I will start by introducing members of the
senior management team. Secondly, I will cover some of the significant events
and progress Globix has made, including how we transformed our business model
and how we have weathered the storm during the challenging economic times in the
last several years. Finally, I will give you a look into what we are doing today
and some of our successes in the marketplace.
I'd like to introduce our Chief Technology Officer and Senior Vice President of
Operations, Jamie Holcombe, who joined us in July 2002 He has more than 17 years
of experience in information technology management and communications services.
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Next is John McCarthy our Senior Vice President of Corporate Development and
Sales and Marketing. John joined Globix in March 2001.
Jim Schroeder our General Counsel, joined Globix in 2000 and was promoted to his
current position in 2003.
2-Year Recap
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Pete Stevenson
Now before I introduce Bob Dennerlein our CFO and move into the review of our
quarterly financial results, here is a summary of the significant events over
the past two years.
2002
FY 2002 could be best categorized as a restructuring year for Globix, as we made
calculated plans to manage our business during the challenging economy of the
time.
o Long behind us, we filed a restructuring plan under Chapter 11 in
March of 2002.
o On April 26, 2002, all conditions necessary for our Plan of
Reorganization to become effective were satisfied or waived and Globix
emerged from Chapter 11 bankruptcy protection.
o We emerged from restructuring in 2002 with $120 million in 11% senior
notes which, to date has been reduced to approximately $72 million.
2003
FY 2003 was a better year for Globix. We continued to make improvements to our
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operations and our customer base, shedding non-strategic or underperforming
business lines and assets that drained cash from the business all while
continuing to improve our efficiency and productivity. We closed out 2003 with
250 employees (down from ~700 in Feb 2002), current with our SEC filings and
were compliant with Sarbanes-Oxley 302 requirements.
Here are some of the fiscal 2003 highlights:
o In March and April, in conjunction with one of our biggest media
customer, The Feedroom, we served up a record amount of streaming
video and audio traffic for the war in Iraq across our content
delivery network. We received more than 6.5 million requests in the
first two days of the war that amounted to 10.5 terabytes or 130,000
hours of streaming audio and video.
o In April we officially exited the DSL business - selling our business
to COVAD, allowing us to concentrate on our core, higher-margin
services.
o In October, we purchased Aptegrity, a managed services provider. The
purchase brought to Globix clients such as Visa, British Petroleum and
The A&E Channel among others.
o In the last quarter of 2003 we:
o Subleased the last 3 vacant floors of our 139 Centre Street
location , and
o We received bondholder approval to sell our building at 415
Greenwich Street, which we completed in January 2004 using the
proceeds to reduce our long-term debt and accrued interest by
$44M.
Q2 Financials
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Pete Stevenson
Moving forward to the second quarter of our FY 2004, we have certainly kept the
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momentum going and remain committed to our goal of sustained positive cash flow
and growing our business. I am going to introduce Bob Dennerlein, our Chief
Financial Officer who will take you through the quarterly financial review. Bob
joined Globix in January of 2003. He and his team have helped make significant
improvements in operating costs and has brought Globix into SEC compliance with
8 SEC filings in 11 months and commenced the process to meet Sarbanes-Oxley 404
regulations.
Bob Dennerlein
Q2 2004: Financial Update / Presentation
Thanks Pete. Good afternoon everyone. Let me begin by giving you some of the
financial highlights for the quarter.
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In Q2 2004 we continued our efforts to reduce operating expenses, long-term debt
and increase revenues for our high margin services. We accomplished and exceeded
our internal goals for the quarter based on the benchmarks we established with
our operating plan. Here are some of the highlights for the quarter:
We continued our focus of operating expense reduction in January by completing
the sale of our facilities on Greenwich Street in New York for approximately $60
million realizing net proceeds of approximately $48.7 million dollars. This
eliminated approximately $160 thousand dollars per month in ongoing operating
expenses.
In March we used approximately $44 million dollars of the proceeds from the sale
of the building to buy back some of our 11% senior notes due in 2008 at par
value plus accrued interest.
Compared to the same period in 2003 we saw reductions in cost of revenue and
SG&A expenses.
Additionally we eliminated revenue from low margin DSL, and hardware and
software sales as stand-alone products, while increasing revenues from Managed
Services in the quarter.
Revenue
Revenue for the quarter ended March 31, 2004 was $15 million, twenty nine
thousand dollars. We have seen quarter over quarter revenue growth for the last
two sequential quarters. Revenue growth over the prior quarter was largely due
to the Aptegrity acquisition, which contributed 1.2 million dollars of revenue
in the current quarter as opposed to $893 thousand dollars in the prior quarter,
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and favorable effects from foreign exchange of $455 thousand dollars. Again
comparing quarter over quarter, excluding Aptegrity we experienced a decline in
our core revenue (defined as contracted revenue plus one time media and
professional services). From our fourth quarter of fiscal 2003 to our first
quarter of fiscal 2004 the decrease was $740 thousand dollars. However, we saw
stabilization of our core revenue in our current quarter relative to our first
quarter as the decline improved to approximately 40 thousand dollars.
In comparison to Q2 2003, revenue remained relatively flat after netting out
sales from our hardware, software and DSL lines.
Our monthly churn rate for Q2 2004 was an average of 1.3 percent, which is an
improvement over the prior year average of 2.9 percent for the same period. We
define churn as contractual revenue losses due to customer cancellations and
downgrades, net of upgrades, and additions of new services. The cumulative
effect of customer churn for the last 12 months represents approximately $2
million dollars.
Finally, compared to Q2 2003, we experienced revenue growth of 1.2 million
dollars resulting from the Aptegrity acquisition and approximately $800 thousand
dollars of positive effect arising from favorable foreign exchange rates.
COSTS
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Cost of revenue
Compared to the Q2 2003, the Cost of Revenue for the quarter showed a net
improvement of $300 thousand dollars to a total of $5 million dollars. While we
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absorbed $697 thousand dollars in operating expenses associated with our
Aptegrity Business, we drove improvements of $657 thousand dollars within our
network cost structure and an additional $340 thousand dollar improvement with
the elimination of hardware sales and our DSL business. The analysis also
includes approximately $125 thousand dollars unfavorable cost impact associated
with the effects of foreign exchange.
Selling, general and administrative expenses
Our SG&A expenses improved by $1.8 million dollars to $10.7 million dollars as
compared to $12.6 million dollars for last year's quarter . The comparative
decrease in SG&A expenses were due to a one-time non-cash charge of $1.1 million
dollars included in the second quarter of fiscal 2003 related to warrants
granted to the Company's strategic advisor. In addition, salaries and benefits
decreased by $248 thousand dollars to $5.3 million dollars in the quarter
compared to $5.6 million dollars in last year's quarter. This is a result of our
restructuring efforts that focused on significant reduction in facilities and
personnel. Our bad debt expenses decreased $390 thousand dollars to $237
thousand dollars for the current quarter, compared to $630 thousand dollars in
the same quarter last year, as a result of improvement in collections and a
reduction in the number of high risk customer account receivable balances. Our
DSO for the current quarter is 39 days. The aforementioned analysis includes the
adverse effect of foreign exchange rates in the amount of approximately $437
thousand dollars quarter over quarter.
Impairment charges
We recorded impairment charges of $659 thousand dollars resulting from
additional costs incurred in connection with the write-down of the cost basis of
the Company owned building located at 415 Greenwich Street in New York City to
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its market value less cost to sell of approximately $11.5 million dollars. As
mentioned, the sale of the Property was consummated in January for total cash
consideration of sixty million dollars of which we realized $48.7 million.
Depreciation and amortization
Depreciation and amortization decreased to $3.5 million dollars for the quarter,
as compared to $4.1 million dollars in last year's quarter. $409 thousand
dollars of the decrease was associated with no longer depreciating the 415
Greenwich facility. These reductions were partially offset by amortization of
intangible assets resulting from the acquisition of Aptegrity in the amount of
$80 thousand dollars.
Interest and financing expense
Interest and financing expense for the quarter was reduced by $500 thousand
dollars to $3.1 million dollars, compared to $3.6 million dollars for last years
quarter. This decrease is attributable to two repurchasing events of our 11%
senior notes: One for $16.8 million dollars in calendar year 2003 and one for
$40.3 million dollars in principal amount in March of 2004. This was partially
offset by an increase in the balance of the 11% senior notes of approximately
$11.3 million dollars resulting in the fulfillment of our pay in kind obligation
in May of 2003.
Interest income
Interest income for the quarter was $137 thousand dollars compared to $347
thousand dollars, for last years quarter. The change is primarily due to the
utilization of our cash and investments
Other income
Other income for the quarter was $899 thousand dollars, compared to $204
thousand dollars, for last year's quarter. The increase is due to a one time
receipt of $450 thousand dollars from funds received in connection with the
September 11 terrorist attack, and from $270 thousand dollars of ongoing rental
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income from leasing office space in our New York headquarters facility.
Net loss
As a result of the factors described, we recorded a net loss of $6.9 million
dollars for the quarter, which is an improvement compared to a net loss of $7.1
million dollars last years quarter.
On an adjusted EBITDA basis our loss was $436 thousand for the
recent quarter, an improvement of $825 thousand compared to our
first fiscal quarter of $1,261, and a $990 thousand improvement
compared with the quarter ended March 31, 2003.
We have included a reconciliation of our loss from operations to our
adjusted EBITDA loss in today's press release.
CASH HIGHLIGHTS
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I am now going to move onto our cash highlights. We have been very successful in
restructuring a significant piece of our debt and reducing operating costs since
2002, we are happy to report that these trends have continued during this fiscal
year.
Cash and non-restricted investments:
As of March 31, 2004 the company had cash, cash equivalents and non-restricted
investments of $23.6 million compared to approximately $32.4 million on
September 30, 2003 or an $8.8 million difference. Highlights of the major cash
impacting events during the past six months are:
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o While we received $48.7 million from the proceeds of the sale of 415
Greenwich NY facility, we bought back a total of $49.6 million of our
11% notes.
o We acquired the Aptegrity managed services business for $2.3 million
dollars
o Capital expenditures were $1.8 million dollars of which $700 thousand
dollars was for negotiated vendor contract settlements, which we
bought back at a discount
o We also had non capital contract settlements of $500 thousand dollars
with less than a one year payback
o The balance of $3.3 million utilization was due primarily to our
adjusted YTD EBITDA loss of $1.7 million and our mortgage payments for
our New York Headquarter facility of $1.1 million.
This concludes the financial update. I will now turn the call back to Pete for
his closing comments and then we would like to open the call for any questions.
Future Outlook
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Pete Stevenson
Thanks Bob. I would like to thank everyone for joining us on the call today.
Before I open up the call for your questions I would like to leave you with a
few final thoughts about Globix.
Today, Globix is all about selling to mid sized companies, divisions of Global
2000 Corporations and the government sector.
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We offer our current and prospective clients
o A bundled suite of integrated services including:
o Managed Application Services
o Data Center and Network services
o Media Services including webcasting
We provide our services through our 5 world-class data centers and Global Tier 1
IP network, which are managed everyday of the year by our Global Network
Operations Center
Throughout this year we will continue to work towards building strong customer
relationships, up-selling services into our current customer base, acquiring new
customers and providing high-value service delivery. We will continue to grow
our channel partnerships, offering incentives to attract the most strategic
partners. And finally, Globix will continue to work on business development,
looking at strategic opportunities in the market that would accelerate our cash
flow by strengthening our position in certain geographic markets, industry
segments or service offerings.
While at this time we are not prepared to offer up future guidance we believe we
will grow revenues in comparison with the prior year.
I would like to thank you All for your time and attention. At this time it is
appropriate to open up the call for questions.
Q&A
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