EXHIBIT 99.1
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Operator: Good afternoon. My name is [operator name] and I will be
your conference facilitator today. At this time I would like
to welcome everyone to the Globix Investor Update
Conference. All lines have been placed on mute to prevent
any background noise.
After the speakers' remarks, there will be a question and
answer period. If you would like to ask a question during
this time, simply press star, then the number one on your
telephone keypad. If you would like to withdraw your
question, press star, then the number two on your telephone
keypad. Thank you. Ms Montgomery, you may begin your
conference.
Ms Montgomery: Hello, I am Shelagh Montgomery, and I am the General Manager
of the Eastern Region. Welcome to our first investor
briefing of 2005. On today's call we will provide an
overview of Globix covering the past two years, and a review
of our Q2 2005 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 and 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 to staff its operations,
potential market or technological changes that could render
the company's products or services 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.
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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 turnarounds, domestically and
internationally. Pete?
Mr. Stevenson: Thanks Shelagh, Good afternoon and welcome everyone. On
behalf of our 350 employees I would like to thank you for
joining us today for our first investor update of 2005.
Today, Globix is a company with approximately 1,500
customers with major presence in the New York Metro area,
the Boston metro area, Atlanta Georgia, Santa Clara
California and London England delivering a suite of
integrated services ranging from optical networking and IP
network services, data center services, and managed
services; including security, media, and application
management solutions. As you can see, this is not only a
company with backbone, but with all the other parts too.
The last twelve months, and the last quarter in particular,
have been successful. In March, we completed our merger with
NEON Communications and are well along the way to completing
the integration of the 2 companies through an aggressive
plan which has already yielded positive results. And on
April 13th, Globix began trading on the American Stock
Exchange. These accomplishments are all exciting and
strongly position our company to capitalize on future
opportunities.
Our team has worked diligently over the last twelve to
twenty-four months to reshape and right size Globix. We are
beginning to see these efforts pay. I'm pleased to report
that Globix is in its sixth consecutive quarter of revenue
growth.
Our wealth of experience in hosting is serving as a strong
baseline for our continued push into managed services. These
efforts are paying dividends as the last six quarters
demonstrate managed and media services are both strong
growth areas for Globix. We will highlight the growth later
in the call. One of the new managed services we offer our
customers is Network Defender; a DDoS mitigation service
that helps customers mitigate malicious network based
attacks on their servers. In fact, we were mentioned in a
recent Wall Street Journal article on May 5th, 2005 titled
"Tech-Savvy Blackmailers Hone A New Form of Extortion." We
are seeing increased demand for Globix' media services
including a hosted digital asset management service, live
event encoding and turnkey webcasting services.
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On the strategic front, we've recently completed the
acquisition of NEON, the premier provider of optical
networking services in the Northeast and mid-Atlantic
corridor. We now own and operate a fiber optic network
comprised of over 5000 route miles in the highest traffic
corridor in the United States, ranging from Washington DC,
the Philadelphia area, New Jersey New York area, Boston and
the rest of New England. We have opened colocation
facilities in these markets along our network expanding our
data center footprint by more than 50,000 square feet across
9 locations. This expanded footprint is formed through the
combination of the additional facilities brought to us
through our Neon acquisition. These facilities represent a
hidden jewel for us as we have now increased our footprint
without effecting the long term obligations of the company.
We have recently opened facilities in Plainfield New Jersey,
White Plains New York, Wooster and Springfield
Massachusetts. In the months to come we are evaluating which
other facilities to add to the expanded footprint.
Clearly adding optical networking and data center
capabilities to the Globix service portfolio will allow us
to provide enhanced value to our customers. We are making
the appropriate commitments to be truly market focused. We
are focusing our internal efforts on introducing new
services, selling our services into growth markets,
motivating the organization to cross-sell, and leveraging
our entire set of capabilities as a differentiator in the
market.
Participating as a valued network partner to the growing
wireless network providers represents a core focus area for
the company. With a U.S. installed base of cellular
technology reaching record heights, we are seeing wireless
providers spend capital to increase the capacities of their
network so they can roll out value added services like
messaging, ring tones, and short length video. We are
providing the optical networking services connecting major
switching centers which enable the wireless companies to
unlock their market potential. With these high credit rating
customers, we are entering into contract lengths typically
between one to seven years giving us a long-term annuity
revenue stream.
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Globix is also focused on creating value for companies
seeking to outsource critical IT functions and network
requirements. Small-to-medium sized business and divisions
of Fortune 1,000 companies represent our core client base
for managed services. While the enterprise market is a
growing segment for us, the carrier market represents the
largest proportion of our network services revenue. We are
realizing the value of carrier relationships through the
financial benefits of our merger as we now have a
diversified revenue base.
Our transaction with Neon was a stock and cash deal that
included a $12.5 million dollar reduction in our long-term
debt. For those of you that have read our recent 8KA filing
you have seen that NEON generated $48 million of revenue,
and $3.4 million of adjusted EBITDA. On top of this, we have
already realized cost synergies of approximately $600,000 on
a quarterly run rate basis and believe we are on track to
realize our goal of $1.2 to $2 million in quarterly savings
over time.
Finally, as I mentioned before, Globix started trading under
the symbol GEX on the American Stock Exchange on April the
13th. I think you'll all agree these are exciting times at
Globix.
I'm now 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 with
over 24 years of experience. Prior to joining Globix, Bob
served as Vice President and Controller for OpNext, a global
optical components joint venture. Bob?
Mr. Dennerlein: Thanks, Pete. Good afternoon everyone. Let me begin by
giving you some of the financial highlights for the quarter.
In Q2 2005, we continued our efforts to reduce operating
expenses and long-term debt while increasing revenue for our
high margin services.
The most significant financial event of the quarter was the
acquisition of NEON which occurred on March 7th. Our
quarterly results reflect the impact of the acquisition for
the period from March 7th though the end of the quarter.
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Globix acquired NEON for $112.6 million, which consisted of
$104 million of equity, comprised of common stock, options,
warrants and preferred stock; in addition to $5.3 million of
cash; and $3.1 million of acquisition costs. The transaction
also called for Globix to exchange $12.5 million of
principal and accrued interest on its 11% senior notes for
approximately 4.5 million shares of common stock. Now let's
talk about the quarter.
The operating performance continued to improve in the second
quarter. Q2 revenue was $20 million, or a $5 million
increase over the same quarter in 2004. $3.2 million of the
increase was from our NEON segment for the last three weeks
of March and $1.8 million was from Globix's organic growth.
If we take a look at the business on a service line basis,
managed services showed the strongest growth, going from
$4.6 million to $5.5 million, or a 19.6% increase. Revenue
from Internet hosting and colocation increased from $5.8
million to $6.4 million or 10.3%. Network services and
Internet access revenue declined from $4.5 million to $4
million due to our continued focus on acquiring and
retaining higher value-added customers. These decreases were
offset by a $794 thousand increase in hardware and software
sales. A key point to mention is that typically, hardware
revenue is associated with recurring services as we are not
in the business of buying and reselling hardware as a line
of business.
For the Globix segment, Q2 monthly average revenue per
customer or (ARPU) was $3.6 thousand compared to an average
ARPU of approximately $3.3 thousand, a 9.1% increase over
the same quarter in 2004. This ARPU growth is due to our
continued focus on higher-revenue managed services following
the acquisition of Aptegrity which occurred in October 2003.
For the NEON segment ARPU was $39 thousand for the quarter.
We calculate ARPU by dividing our average contracted monthly
recurring revenue for the period by our average number of
contracted customers during the period.
Q2 cost of revenue for the quarter was $11.4 million, an
increase of $2.7 million from the same period in 2004. $1.8
million of the increase is the direct result of our NEON
acquisition. The remaining increase of approximately $900
thousand is attributed primarily to variable expenses tied
to our increased hardware revenue and to a lesser degree
increased utility costs in our New York data center. Our
gross margins, including the impact of the NEON acquisition,
for the quarter were 43.0% as compared to 42.2% for the same
period last year.
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Selling, general and administrative expenses were $9.2
million, an increase of $2.2 million from the same period in
2004. $1.1 million of the increase was associated with
NEON's expenses included in the current period; $200
thousand in commissions due to increased revenue; and $800
thousand for a one-time litigation settlement.
I'd like to also point out that bad debt expenses decreased
by $202 thousand to $39 thousand for the quarter, due to our
continuing improvement in collections, reductions in the
number of high risk customer receivable balances and
collections of previously written-off balances. DSO's are
typically in the 35 to 38 day range for the Globix segment
and less than 20 days for the NEON segment, which indicates
real stability.
As Pete mentioned previously, we are driving additional
expense reductions which we expect to be reflected in the
future in both S.G & A and cost of revenue.
The company also recorded a non cash loss of $3.2 million on
the $12.5 million debt for equity exchange.
I am now going to move onto our cash highlights. As of March
31, 2005 the company had cash, cash equivalents and
non-restricted investments of $17.2 million compared to
approximately $21.7 million at our fiscal year end on
September 30, 2004 or a $4.5 million reduction. Highlights
of the major cash impacting events during the past six
months were:
o From the NEON transaction we netted approximately $2.8
million in cash after buying back approximately $5.3 million
in preferred stock.
o We received $500 thousand from the sale of marketable
securities
o We invested $6.2 million dollars for capital expenditures.
$4.1 million was for success based capex which in our NEON
segment was $1.7 million (since March 7th) and $2.4 million
of success based in our Globix segment. The balance of $2.1
million relates to facility and software upgrades. Our
success based capex is typically linked to long-term
contracted monthly recurring revenue.
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o Our cash used in operating activities was $1.7 million for
the six month period.
Our long term debt permits us to pay interest in kind
through 2006. On May 1st of this year we issued an
additional $6.7 million in senior notes to make the annual
pay in kind interest payment on our senior notes, thus
increasing our indebtedness to approximately $88 million of
which approximately $68 million represents our senior notes
and the remainder is in the mortgage on our New York
headquarters. In the long term our goal is to decrease this
indebtedness to free up cash for growth, and we may look to
additional financing to do this, but in the short term we do
not need cash for debt service.
o Before I turn the call back to Pete, I would like to give
you some commentary on our pro-forma results. Combined
second quarter revenue, assuming the transaction occurred on
December 31, 2004 was $29.1 million. Combined pro forma
adjusted EBITDA for the same period was $600 thousand.
However, this includes the previously mentioned $800
thousand one-time litigation settlement. Therefore,
excluding the settlement, adjusted EBITDA for the quarter is
approximately $1.4 million or $5.6 million annualized. Given
our expected quarterly synergies of $1.2 to $2 million, or
$4.8 to $8 million annualized, this implies an annualized
adjusted EBITDA after synergies of approximately $12
million. This assumes synergy achievement in between $1.2
and $2 million and does not take into account revenue
growth.
We use adjusted EBITDA because we believe it may be useful
to investors as a performance measure and may help them
understand our cash resources and requirements. A
reconciliation of adjusted EBITDA to net operating loss is
included in the current report on Form 8K that we filed on
May 24th, 2005.
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.
Mr. Stevenson: Thanks, Bob. I would like to thank everyone for joining us
on the call today. However, before I open the call up for
your questions, I would like to leave you with a few final
thoughts about the Globix Corporation.
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Globix is a company moving forward. All the hard work
reshaping the company to meet the needs of customers has
begun to pay off. The merger with NEON brings an excellent
set of capabilities to our customers and a new vitality to
our company. This new vitality is manifesting itself in our
strategic focus on growth products and building awareness in
the market of the Globix story. Everyday, the company has
highly experienced network and IT professionals eager to
create value for clients and shareholders alike. We are
excited about the future.