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EXHIBIT 99.1
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 1
GLOWPOINT, INC.
November 12, 2003
4:00 p.m. CST
Moderator Good afternoon, everyone. Welcome to the Glowpoint,
Incorporated 2003 third quarter results conference call.
Before we begin I want to remind listeners that this call
is being WebCast live over the Internet and that a WebCast
replay will also be available on the company's Web site,
www.glowpoint.com, following the call. I would now like to
introduce Glowpoint's CFO, Chris Zigmont, who will review
the Safe Harbor information with you now.
C. Zigmont Thank you. The statements contained herein, other than
historical information, are or may be deemed to be
forward-looking statements and involve factors, risks and
uncertainties that may cause actual results in future
periods to differ materially from such statements. These
factors, risks and uncertainties include market acceptance
and availability of new video communications services; the
non-exclusive and terminable-at-will nature of sales agents
agreements; rapid technological change affecting demand for
the company's services; competition from other video
communication service providers; and the availability of
sufficient financial resources to enable the company to
expand its operations, as well as other risks detailed from
time to time in the company's filings with the Securities
and Exchange Commission.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 2
Today's call and WebCast may include non-GAAP financial
measures within the meaning of SEC Regulation G. When
required, a reconciliation of all non-GAAP financial
measures to the most directly comparable financial measure
calculated and presented in accordance with GAAP can be
found in today's press release.
D. Trachtenberg Thank you, Chris. We have a lot to discuss today. Welcome,
everyone. I'm David Trachtenberg, Chief Executive Officer
and President of Glowpoint. This is the first time I've had
a chance to speak with you since I joined the company,
literally four weeks ago as of today, and I appreciate your
patience over these last few weeks. I know that many of you
have been eager to speak with me about Glowpoint, but I
have been spending my time getting up-to-speed on the
technology, the operations and getting under the hood, so
to speak, to make certain we have the understanding of what
will make this company run efficiently and effectively as a
standalone business since our Wire One transition.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 3
It's been a busy, exciting and productive time here at
Glowpoint this past month. I know that the purpose of the
call is to share details on our third quarter results;
however, it is also critical to take the opportunity to
discuss with you my observations about Glowpoint's
potential, as well as to lay out clearly the challenges we
are addressing, to ensure that we realize that potential.
I want to begin my remarks by telling you what attracted me
to Glowpoint. I'll then update you on what we've
accomplished during these first few weeks, where I believe
we need to go and how we intend to get there. Chris will
follow with a recap of the quarterly numbers and Mike
Brandofino, our CTO, will summarize with a few comments
about our ongoing operations.
For those of you unfamiliar with my background, I come from
the telecommunications and Internet industries, having
spent the first two decades of my career building,
marketing and managing technology-rich, subscription-based
services. The two qualities that most attracted me to
Glowpoint were its technology and its business model. The
simplicity of both was important in my decision to join and
has been reinforced by my first month on the job.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 4
First, the technology works. This is not about the promise
of a video conferencing solution to combat the ills and
frustrations with traditional ISDN service. Since Glowpoint
began tracking its network stats in Q1 2001 through Q3
2003, over 12.5 million minutes of video conferencing have
flowed through the network, and we reached a milestone this
past quarter, hitting 100,000 IP calls placed on the
Glowpoint network. We are state of the art and ready for
and already operating in prime time.
Second, the business model is sound. It is about building a
base of satisfied subscribers, creating a strong, ongoing
cash flow that is predictable and bankable. It is about
scaling this billable base, to leverage our infrastructure
investment. It is about customer marketing and up-selling
into our stable and loyal base of customers, to add
ancillary products and services for additional revenue and
margin.
This should not be new news, but it is coming from an
organization born anew, one with a new corporate identity,
operating team and capital structure. Although the service
has been up and running for nearly three years and I am one
of the few newcomers of late, all of us truly feel as
though we are a new team pursuing a unique opportunity to
build a company from the ground up.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 5
While Chris, Michael and others join me in moving Glowpoint
forward, they do so now with a new focus and energy that
was simply not possible before. Glowpoint went from a
skunkworks operation within Wire One to become our core
business. We are now Glowpoint in name, in product and in
focus.
That said, let me share with you some thoughts from my
first weeks with the company. My first conclusion is that
after numerous discussions with customers, prospects, sales
agents, employees and strategic partners and a vigorous
analysis of company operations, Glowpoint has a much
stronger competitive position than what has been visible
from the outside. Our product offering is strong and unique
for our distribution partners and our customers rely on
Glowpoint to a much greater degree than the average video
conferencing service. As one example, we have one law firm
with 11 billable subscriber sites that generated a total of
over 575 Glowpoint hours over last quarter or on average
over 17 hours per billable location per month on outbound
calls alone.
Our service is also a strong fit for other key vertical
markets, like technology-related companies, financial
institutions, education and local, state and federal
government contracts. Just looking at our current
customers: technology-related companies represent 19%;
financial institutions, 16%; educational institutions and
law firms each represent 9%; and medical institutions, 8%.
Even with minimal focus, Glowpoint has been able to find a
few sweet spots in verticals that recognize the benefit of
our solution. Just imagine the possibilities with a focused
and directed sales and marketing program, to own and
further penetrate these strategic verticals.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 6
My second conclusion is that having been conceived,
delivered and reared in the shadow of a much larger parent,
Glowpoint must quickly refocus on the fundamentals of being
a standalone operating unit. The key focus message is
two-fold.
First, back to basics: this is now the mantra within
Glowpoint. We must focus on our core business, building and
supporting a large and stable subscriber base for our IP
videoconferencing solution. This means creating sustainable
and scalable business with all of the operational processes
and efficiencies that will ensure a world-class customer
experience for our sales agents and our subscribers. This
focus must be coupled with the right tracking and reporting
to manage the business, using the right metrics to
understand the key levers for getting to a cash flow
positive operation. Chris will talk in more detail about
this in a few minutes.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 7
The second strategic focus for Glowpoint is diversified
distribution. To build our subscription base, Glowpoint
must partner with sales agents who can drive our business
quickly and efficiently. While Glowpoint today has over 30
contracted resellers outside of Wire One, approximately 50%
have ever sold Glowpoint. After a complete review of the
agent list, only a handful is considered high potential for
sales growth. The fact is, a good agent is not made from a
press release. It is about selecting the right partners and
having the right tools in place to certify, train, incent
and grow the relationships.
Our launch of isellglowpoint.com and the announcement
yesterday of CMS coming on board as our newest reseller
with 400 feet on the street are the first steps in turning
our sales agent relationships into an active sales
pipeline. We are going to focus our human capital and
resources on those partners who have and who can deliver
for Glowpoint, and we will use less expensive and more
efficient Web-based tools to manage the smaller resellers
who want Glowpoint in their product portfolio. To be clear,
Wire One remains a critical partner for Glowpoint and we
will continue to improve the tools they use to partner with
the company, but we must balance our continued strong
support of this channel with a need to diversify and expand
our reach in the marketplace.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 8
In many respects, these last several weeks have been the
first time the team has had the luxury of focusing
exclusively on Glowpoint, getting back to the basics of
understanding Glowpoint as a standalone business. One key
element of this is to understand our starting point at the
end of the third quarter. Chris will walk you through the
details, but a few key highlights include the following:
Glowpoint's core subscription business continues to grow.
For example, total subscription and other related revenue
rose 19% from the second quarter to $1.9 million. However,
as Chris will also explain, growth has slowed. This is due
to distractions from the Wire One transition, resulting in
a less focused sales engine, as well as a less productive
new sales agent pipeline, as I just described. New
endpoints under contract dropped from 271 in the second
quarter of 2003 to 179 in the third quarter, down 34%.
Finally, net new endpoints installed on the network were
also down, due to recognizing endpoint churn for the first
time. This is worth more detail. Glowpoint lost 94
endpoints in the third quarter, a combination of proactive
and reactive losses. Let me explain.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 9
Approximately 60% of these endpoints, or 58, had already
been installed on the network. While these disconnects were
revenue impacting, they do not necessarily reflect
vulnerability due to dissatisfaction with the service.
Two-thirds of these cancellations were by customers who
continue to use Glowpoint; in some cases with more than
several circuits still active and experiencing heavy use.
The other one-third of endpoints, or 36, were actually
cancelled prior to coming on to the network; so while they
are not immediately revenue impacting, they will decrease
the install flow for future subscription revenue.
Overall, these numbers translate into a monthly churn of
only 1.5%, much lower than typically experienced in other
sectors of the telecom world. So while we would prefer not
to see any churn, we don't think the figures we are
presenting today necessarily represent vulnerability. We
will, however, be implementing early warning systems to
make certain that Glowpoint is on top of potential customer
loss. As I know from prior experience, it is much easier
and less expensive to save a customer, than to win one
back.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 10
Based on this disconnect activity in the third quarter, one
of our key actions over the fourth quarter is an extensive
review of our accounts to identify a clear picture of any
potential issues. For example, we are proactively
identifying orders under contract and not yet on the
network that, for a variety of reasons, have a low
likelihood of ever being installed. We need to clean these
out of the system so we have a real view of the install
backlog.
We are also looking carefully at all of our circuits on the
network, to make certain we are managing our costs
effectively. For example, a demo circuit no longer in use
should no longer be generating charges from our providers.
Regardless, as we continue to drive analyses to help us
make the right decisions for the business, it is has become
increasingly clear to me that the endpoint versus circuit
dialogue that has been a consistent topic on these calls
and in the hallways of Glowpoint has, quite frankly, caused
confusion. The bottom line is that Glowpoint and,
therefore, the marketplace must have a clear understanding
of the operating metrics that drive our economics. We must
track and report against those levers that mean something.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 11
Endpoints under contract and endpoints on the network are
not the metrics we will use to explain and track our
business going forward. We are a subscription-based
business, and we need to report metrics that reflect the
number of subscribers generating revenue for the company.
Therefore, the key driver of our business is billable
subscriber locations, not endpoints and not circuits and
not endpoints or circuits that may or may not ever get into
our billing system.
As you know, a billable subscriber location can have
multiple endpoints and multiple circuits, for example,
bonded T-1s. While the endpoint will drive usage, the
billable subscriber location to which it is literally and
figuratively connected drives the subscription plan. One
subscription plan per billable subscriber location. That's
what drives our subscription revenue. That's what the
Glowpoint monthly bill summarizes. That's what we should be
looking at.
The term "under contract" is also a misnomer. It is a
combination of orders that have been installed and
generating revenue on the network, as well as orders yet to
be installed. The issue is that there is not a one-to-one
correlation with orders in queue to be installed and those
that have actually become billable, as you saw in the third
quarter and are proactively cleaning up in the fourth
quarter. The subscriber location backlog is important to
look at to understand the potential Glowpoint install flow,
as long as expectations are set that until they come onto
the network, they are only a potential subscriber location
and should not be assumed as anything else.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 12
So, going forward for Q4 and beyond, Glowpoint will be
sharing new metrics that will help the company and
investors quickly and efficiently track our progress. As
you saw in the press release from this afternoon, the first
metrics of this new approach are billable subscriber
locations, which I just described; the number of total
customers, which is a key metric in understanding our
market penetration; billable subscriber locations per
customer, which will help to understand the size of our
customers and the penetration of Glowpoint within their
organization; and, subscriber location backlog - those
under contract, but not yet installed, again an important
metric with the obvious caveats that we already discussed.
Chris and I will communicate other key metrics as they are
identified and verified as key levers for the business.
The point of highlighting our challenges and new metrics
for the business is not to lay blame at anyone's doorstep.
The Glowpoint team has done an admirable job with the
resources available to them during these first three years.
The point is to provide you, our shareholders, with a
credible assessment of our starting point as a standalone
business.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 13
Let me emphasize that I strongly believe the near-term
operational and sales challenges Glowpoint faces are
eminently surmountable. We have a product that works,
customers who use it and important sales channels who want
to sell. It is now about execution, and we have been
focusing on execution since I joined on October 15th and
are focusing on near-term activities to drive momentum as
we move into 2004. We have been and will continue to:
1) identify ways to realize greater network savings in
terms of last mile partners, reducing unnecessary
redundancy as we continue to augment the network and, as
I discussed earlier, ensuring our costs are aligned with
our revenue.
2) create a help desk for our agents and customers that had
been managed by Wire One, including implementing a
remedy/trouble ticketing solution for tracking and
reporting across the organization.
3) document and improve audits and controls for order
management, billing and accounts receivable.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 14
4) improve and automate order processing and provisioning
to reduce installation time and further improve the
customer experience.
5) clean up the current distribution channel by ending
agreements with agents that were not a great fit with
our program or whose sales did not meet our expectations
and more importantly, redirect our resources to those
agents who can be productive and long-term partners for
Glowpoint.
6) create a new and more effective tiered field agent
program with laser focus on not only closing agreements,
but also creating the tools and partnerships to make our
agents productive Glowpoint resellers.
7) re-evaluate our product strategy to align more closely
our revenue stream with our underlying economics.
What this means for investors is that the company is
focused on the fundamentals to grow the business
efficiently, and we must drive these operational
efficiencies in parallel with expanding our distribution
channels. Because agent recruitment and subsequent sales
and install cycles take time, we must set the proper
expectations on when we can reap the benefits of a core
group of focused Glowpoint resellers. Chris will provide
more color in terms of current information of when
Glowpoint can anticipate operating profitability.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 15
As I said before, we view our opportunities as great and
our challenges as manageable, partly because we are no
longer distracted by non-operating events, partly because
we have a better handle on just what our operating
challenges are, and partly because we are better focused to
overcome them than ever before.
With that, I will turn the call over to our CFO, Chris
Zigmont, who will provide a detailed review of the
financial results.
C. Zigmont Thanks, David. Please note that in addition to the
quarterly numbers, I will be providing commentary to help
you better understand our business model. I'd like to begin
with our revenue results.
As David mentioned, total revenues rose over 69% to $2.6
million in Q3 2003 from $1.5 million in the year ago
quarter, and fell 4% sequentially in Q3 from $2.7 million
in Q2 2003. As usual, summary level figures like this do
not tell the full story.
Glowpoint's core subscription and related revenue
components actually grew 174% to $1.9 million in Q3 2003
from $700,000 in the year ago quarter, and grew 19%
sequentially in Q3 from $1.6 million in Q2 2003. Average
billable subscriber locations grew 205% to 932 in Q3 2003
from 306 in the year ago quarter, and grew 22% sequentially
in Q3 from 763 in Q2 2003.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 16
Average monthly subscription and related revenue per
subscriber location fell 10% to $668 in Q3 from $742 in the
year ago quarter, and fell 3% sequentially in Q3 from $688
in Q2 2003. These movements in average monthly subscription
and related revenue per subscriber location have been
driven by the growth in the number of billable subscriber
locations using the $199 per month, pay-as-you-go plan.
As a side note, we are reassessing our current product
strategy and expect to move into 2004 with a product line
that more closely matches our underlying business
economics. It was bridging events and other one-time fees
category that was the drag on the results, as this category
of revenue fell 16% to $700,000 from approximately $850,000
in the year ago quarter and fell 35% sequentially in Q3
2003 from $1.1 million in Q2 2003.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 17
Event driven revenue was down approximately $200,000
year-over-year and quarter-over-quarter. Bridging revenue
was down approximately $200,000 from Q2 2003, due to the
seasonality impact of the summer.
Cost of revenue rose 73% to $2.5 million in Q3 from $1.4
million in the year ago quarter, and fell 4% sequentially
from $2.6 million in Q2 2003. Cost of revenue is comprised
of two major categories of cost: infrastructure or
backbone-related costs of the network, and access or cost
of connecting subscriber locations to the network.
Infrastructure costs are fixed in nature over the short
term and follow a step function over the longer term. They
rose from approximately $600,000 in Q3 2002 to $800,000 in
Q3 2003 and were flat with Q2 2003 costs of $800,000.
Though currently built out to handle the video traffic of
approximately 4,000 billable subscriber locations in each
of the past two quarters respectively, the company has
incurred approximately $100,000 of cost to relocate the
company's points of presence in Dallas, Chicago, Boston,
Japan and the U.K., to gain long-term cost efficiencies, or
as a result of backbone provider issues.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 18
Access costs are variable in nature. They rose from
approximately $600,000 in Q3 2002 to $1.0 million in Q3
2003, and were down from the Q2 2003 costs of $1.1 million.
The year-over-year increase is driven by the increase in
billable subscriber locations. The quarter-over-quarter
decline results from the absence of access costs related to
the events staged in Q2 2003 and to customer trials that
were concluded in Q2 2003.
Monthly access costs per average billable subscriber
location have also been impacted by the growth in the
number of billable subscriber locations using the $199 per
month pay-as-you-go plan, and by the increasing use of DSL
as the means of accessing the network. The good news is
that average monthly access cost per average billable
subscriber location fell 46% to $371 in Q3 from $689 in the
year ago quarter, and fell 24% sequentially from $486 in Q2
2003.
Other costs of revenue in addition to infrastructure and
access costs include the personnel cost related to
providing the Glowpoint service, along with the ISDN
network cost of providing H.320 bridging services.
Approximately two-thirds of these costs are fixed in nature
over the short term and follow a step function over the
longer term. Other costs of revenue rose from approximately
$400,000 in Q3 2002 to $600,000 in Q3 2003, and were down
from the Q2 2003 cost of $700,000. The remaining item to
note related to cost of revenue was that in Q3 2002, we
recorded credits of approximately $250,000 related to
refunds of previously paid infrastructure and access fees.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 19
The result of revenue and cost of revenue movements was
that our gross margin was flat in Q3 2003 at approximately
$100,000, with the levels achieved in Q3 2002 and Q2 2003.
The nature of our current cost structure described above
tells us, however, that each new dollar of revenue brings
approximately $0.50 of margin with it. We believe that we
will improve this even further to a marginal gross margin
of over 60% over the coming months and quarters, as we
re-evaluate our product offering from the perspectives of
profitability, competitiveness and meeting customer needs
and make changes to standardize this offering with a focus
on the most profitable pricing plans. We will also be
focusing on minimizing our cost per subscriber location, in
order to deliver the Glowpoint service in the most
efficient manner possible.
Operating expenses rose 72% to $4.5 million in Q3 2003 from
$2.6 million in the year ago quarter and rose 47%
sequentially from $3.1 million in Q2 2003. The primary
reason for these increases was the impairment losses on
long-lived assets in Q3 2003 totaling $1.4 million. These
network assets are no longer relevant to providing
Glowpoint's service, as the network topology has evolved
since the service was originally launched. When this item
is factored out of the operating expense totals, the
year-over-year increase in operating expense is actually
19% and the quarter-over-quarter increase is 2%.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 20
Research and development costs, which is a new category of
costs that we're now breaking out on the income statement,
rose 20% in Q3 2003 versus the year ago quarter, and rose
7% sequentially from Q2 2003 levels. These costs are fixed
in nature in the short-term and follow a step function over
the longer term.
Selling expenses rose 10% to $1.3 million in Q3 2003 from
$1.2 million in the year ago quarter and were flat with Q2
2003 levels. The year-over-year increase resulted from
higher commissions and bonuses associated with the higher
revenue levels. Approximately 80% of these costs, though,
are fixed in nature in the short-term and follow a step
function over the longer term.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 21
General and administrative expenses rose 30% to $1.4
million in Q3 2003 from $1.1 million in the year ago
quarter and rose 2% sequentially from approximately $1.4
million in Q2 2003. The year-over-year and
quarter-over-quarter increases were driven by increased
professional fees incurred, conducting the search for a new
CEO and filing the proxy and holding the annual meeting in
August. The normalized quarterly run rate for this category
of expense is approximately $1.2 million and is fixed in
nature in the short term.
At September 30, 2003, the balance sheet consisted of
current assets totaling $12.8 million, and current
liabilities totaling $3.3 million or working capital of
$9.5 million. This compared to $13.6 million of working
capital that existed at June 30, 2003, after netting out
the bank loan payable that had been classified as long term
on the June 30th balance sheet.
Current assets consist of $8.3 million of cash, $2.1
million of accounts receivables and $2.4 million of other
current assets, including approximately $1.2 million due
from Gores Technology Group. The $8.3 million of cash
results from the following: starting with the June 30th
cash balance of approximately $900,000, $16.2 million of
net cash related to the sale of VSB, the Video Solutions
Business, is added. And then the following items are
deducted: the $4.5 million paydown on the bank line of
credit; the $3.1 million in cash burn related to Glowpoint;
and $1.2 million of VSB expenses paid by Glowpoint in Q3
2003 and that is recoverable from Gores Technology Group.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 22
For the next quarter or two, the company expects its total
cash burn, operating expenses plus cap-ex to be
approximately $3 million per quarter and expects this rate
to improve in the subsequent quarters. The cap-ex component
of the quarterly cash burn is projected to be approximately
$500,000 to $600,000. This has a discretionary component of
approximately 20% to 25% of the projected spend.
The company continues to have a $15 million line of credit
in place with JPMorgan Chase Bank. Between its working
capital of $9.5 million, its line of credit and flexibility
in its need to spend cap-ex, the company believes it has
sufficient liquidity to support current operating levels
for at least the next 12 months.
Lastly, based on the most current information available and
with the expectation that we will be further reviewing and
refining this estimate as the senior team continues its
extensive operational review, the company believes that it
can achieve operating profitability at a $2.2 million
monthly revenue run rate level expected to be achieved by
the end of 2004.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 23
With that, let me turn the call over to Mike.
M. Brandofino Thanks, Chris. Since David and Chris have provided quite a
bit of information, I will keep my remarks brief. First, it
is difficult for investors to appreciate the positive
change that has occurred over the last four weeks since
David has come on board and the close of the sale of the
Video Solutions Business. For the first time since the
Glowpoint idea was born, the entire company and all of its
resources, including sales, finance and marketing, are
solely focused on Glowpoint. With David's fresh perspective
and experience, there is a high energy level and clear
message on what needs to be accomplished.
I'll stay focused in the third quarter, which saw some
additional accomplishments and more firsts on Glowpoint.
During the past quarter, we experienced our highest single
day call volume of 490 calls. We had the highest quarterly
total for IP video calls placed on Glowpoint to date of
22,213. We completed an agreement with Network-I that
enables Glowpoint to deliver a last mile solution at a low,
fixed price in the U.K. We have successfully transitioned
large portions of our network off of MCI, which is intended
to diversify our network and ultimately lower the operating
expense for the network. We have moved the U.K. and Japan
POPs to more cost effective locations, and we have begun
the process of eliminating high priced British Telecom and
Cable and Wireless costs. We are currently piloting our new
Webcast service with beta customers.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 24
My team's focus over the fourth quarter will be to partner
with David on continuing to deliver an SLA-driven,
world-class, customer experience on the Glowpoint network;
focusing efforts to lower overall network costs, especially
the last mile costs in the U.S. And we've been working on a
promising technology, which includes broadband access over
power lines that could lower our cost for the last mile in
the U.S.; remaining a technology leader in the
videoconferencing space, including developments of full
featured support, including Microsoft and Apple multimedia
applications; and continuing to improve the user experience
to enhance the features and services like network managed
bandwidth control, improved call status messaging and
seamless dialing plans; continuing to support and modify
the beta rollout of Webcasting services; and finally, to
articulate a clear and cost effective international
strategy that relates back to our core business of building
billable subscriber locations.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 25
Before we go back to David, I wanted to say how excited I
am to be part of this company and I look forward to working
with David to deliver on our potential. David?
D. Trachtenberg Thanks, Mike. I hope today's call has provided a clear view
of our areas of focus in terms of both strategy and
execution. With our focus on the basic business
fundamentals and the expansion of our distribution
channels, we are excited about our future and prospects for
2004. We look forward to reporting back on the next call
with our progress on these objectives.
Chuck, would you please open the lines up for questions
now?
Moderator Thank you. Our first question comes from Joseph Halpern
with Halpern Capital. Please go ahead.
B. Halpern Hello. It's actually Baruch Halpern with Halpern Capital.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 26
Could you expand a little bit on your Webcasting services?
Is that going to include collaboration tools and so on?
D. Trachtenberg Mike, why don't you take it from the big picture? Then I
can give an update on where we are.
M. Brandofino The initial stages of our Webcasting service provides the
ability for our customers to use their video endpoint to
create content. In the past, people would have to hire a
production crew to come in, create content, digitize it and
then put that on a content delivery server. What the
Glowpoint service does is allow its customers to do that
all in one process, automated Web interface, placing a
call, whether it be ISDN or IP. Then, of course, if we
bring customers on using Webcasting on ISDN, we believe
that we can change those customers to Glowpoint by showing
the quality benefits. At some point, data collaboration
does become a factor, but that is something on our roadmap
for later in the year.
Moderator Our next question comes from Jim Stone with PSK Advisors.
Please go ahead.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 27
J. Stone I'm not quite sure I fully understand why, with the
increase of billable revenue and all, that there was a
sequential decline in revenue. Could you possibly give me
some further explanation on that?
C. Zigmont The key aspect of the decline in revenue was in the
category of bridging event and other one-time fees. In the
second quarter, we staged the NFL and NBA drafts with ESPN,
which was a significant contributor in that quarter. In the
third quarter, we experienced the summer seasonality in
terms of a comparison to Q2. The combination of those two
factors totaled approximately $400,000. The core
subscription business, though, grew quite nicely, and
that's what's driven by the average billable subscriber
locations.
D. Trachtenberg And that's why we're really looking at our business now,
focusing on the core, which is our subscription revenue.
That's really what is, from our perspective, what we can
look at to understand the health of the business. That grew
19%. And when you take a look at the overall revenue, which
is what Chris was just talking to, the other components,
which are not subscription based, are a one-time event.
Netting out, that's where the drop of 4% came from versus
last quarter.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 28
J. Stone Right. A metric that might be helpful, so we can understand
a bit about the size of the customers that are coming on is
the number of endpoints per billable location.
D. Trachtenberg That's what I was talking about in my remarks, Jim. What
we're going to be looking at is billable subscriber
location by customer. The endpoints, and if people are
still used to talking about endpoints, it's not something
that we're going to be talking about in our public
statements. If you want to get some kind of translation and
some kind of feel from the company in that, you can talk
off-line with Mike. But the real metric that is driving our
business is the number of subscription plans we have out
there, and that's driven by the subscriber billable
locations. Those are locations on the network driving
revenue.
J. Stone I understand. What I'm looking for in terms of the average
number of endpoints per location or some metric there, so
we get some indication of are we signing up ma and pa
stores, or are we signing up major locations.
D. Trachtenberg Absolutely, and in the press release that we sent out, one
of the key metrics that we're going to be reporting against
are these billable subscriber locations per customer. You
can see that in Q3 2003, that was 4.0, up from 3.4 in Q3
2002 and up slightly from Q2 2003. So you can see, that the
average number of billable locations per customer is four,
so these aren't the mom and pops. These are law firms, like
the one with the 11 billable locations on down.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 29
So that is a metric we're going to be tracking, because
you're absolutely right. It's important to understand the
size of the customer that we're bringing on, to see how
much they're going to be driving from subscription revenue
initially, and then what is the likelihood of them being
able to add additional billable locations so we can grow
within those customer accounts.
J.Stone Now in the uninstalled locations, could you give us a
little better description of what that means? Does that
mean that basically the endpoint, the communication line
hasn't been drawn in, or they may have ten endpoints and
two haven't been installed yet? What actually does it mean?
D. Trachtenberg Let me make sure I understand your question. You're talking
about the backlog?
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 30
J. Stone The backlog of uninstalled locations. I'm just trying to
understand the definition of an uninstalled location.
D. Trachtenberg Okay. That can be in a couple of different categories. What
it means is that we have a contract for a billable location
to be installed, but it is at some point within the
provisioning process. It could be that we literally have
received the contract, but we haven't ordered the circuit
yet. It could be that we've ordered the circuit, but have
not received an install date for the circuit. It could mean
that we have the install date, but we don't have it
actually installed yet. So there is a number of different
points within the provisioning process in which that can
fall. The bottom line is that it is in the queue to be
installed, but not yet on the network driving revenue. Does
that answer your question?
J. Stone Yes. I guess, it does. I'm saying, for instance, there may
have been ten endpoints ordered for the location of which
eight have been installed, but still two endpoints to be
installed. Is that correct? That would then still be in the
backlog?
M. Brandofino No. Again, we're focusing on locations. Regardless of the
number of endpoints, once a location is up, it's up; but
what it could be is that, there is an in-house cable plant
that has to be installed or that the circuit is installed
and we just haven't gotten to test it yet. We will not hold
up billing, if not all of the endpoints at a location are
installed. We focus on the location and make sure that the
circuit is up, and we've completed at least the test call
to that location.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 31
J. Stone Okay. So you've touched on one of the points I was really
trying to understand; that it could be in the backlog, but
still revenue could be coming in from it.
D. Trachtenberg No. And again, it's going to be a period before we're all
comfortable with the new metrics we're looking at. Once
that billable location is up and running and the circuit
has been installed and it is actually generating cost for
us from the last mile provider, we are going to be
generating revenue off of the subscription plan that
they've been signed up, regardless of whether the endpoints
are actually on board or not. That's why we need to get rid
of the endpoint discussion. The endpoint really isn't
what's driving the revenue. It's we have a subscription
plan that's associated with that billable location. Once
that billable location is up and running on the network,
that subscription plan is being billed to that user.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 32
J. Stone And then, last question, what's happening with the average
pricing, whether it's a price per hour or however you're
pricing it now? What's the competitive climb on that, and
are those prices coming down, are they stable? What's
happening?
D. Trachtenberg The prices have been stable. The only change was the
relatively recent introduction of a lower price point. From
Glowpoint's perspective, this is a $199 pay-as-you-go. As
Chris mentioned in his part of the remarks, we are going to
be re-looking at our product and pricing strategy, to make
certain that, one, we've got products out there that are
much more aligned with our underlying cost structure. I
don't want to get into too much detail on that. It's
something that we'll be launching in 2004. I'll be able to
give more color on that on the next call.
But we do not see any competitive pressures from a pricing
perspective. In fact, the story of being more efficient and
less costly both on domestic, as well as international
gateway usage, using the IP videoconferencing solution of
Glowpoint is still a message that our customers are hearing
loud and clear and understand.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 33
J. Stone Do you have any metrics you can share with us of what that
typically or across the network works out as price per
minute or price per hour that customers are paying?
M. Brandofino Because we offer our pricing in a package mode, the typical
package is a ten-hour plan. That's the majority of our
installed packages. For the $199 package, for example, we
charge $0.08 per 64 kilobytes. Normally people are doing
calls at 384, so that would be six times the $0.08 per
minute.
D. Trachtenberg But just to be clear, in the press release, we have an
average monthly subscription revenue per location. That
will give you, really, the revenue that's being generated
by each one of those billable subscriber locations. The
beauty of being a subscription business is that when
somebody signs up for a ten-hour plan and is paying $499 a
month, regardless of how much they use, they're paying us
$499 a month.
J. Stone Right. I understand.
D. Trachtenberg So we can talk about it and again, part of this is, we're
going to transition here. We are going to be identifying
the core metrics that we need to be tracking the business.
Usage per customer may be one of those. I'm getting my
hands around the business. We'll be back to you, as we
understand better what are the key levers that we need to
be looking at on a daily, weekly, monthly, quarterly basis
and we'll be sharing that with you.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 34
What we have in the press release and we talked about in
our remarks are really those that we're comfortable with,
that we understand and that we're able to track against.
J. Stone I admire what you have shared and really appreciate getting
this level of details. I thank you.
Moderator We have a question from Greg Macarthur with Viewpoint 2000.
Please go ahead.
G. Macarthur Good afternoon. I've got three questions. To start off
with, Dave, you're lucky you got two sharp guys, so that
you can do a little learning. You know what I mean?
D. Trachtenberg That's much appreciated and I concur.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 35
G. Macarthur Now I've got a question for Chris and you. Let's go with
this. Chris, can you back up and walk through that burn
rate again?
The next one I want to ask, I'll ask them right now.
D. Trachtenberg Okay.
G. Macarthur Chris, the burn rate.
Mike, just to make it clear to everybody, who is
Glowpoint's competitor? I don't see any out there. The only
thing I can think of is Sprint. Am I wrong?
And the third question is for Dave. Can you be more
specific on your game plan, marketing, PR, ramping up
direct sales, indirect sales, etc., etc.? And I'll let you
guys go.
D. Trachtenberg Sounds good. Why don't we do the burn rate first and then,
we'll move over to the competition and then I'll take on
the last piece?
G. Macarthur Great.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 36
C. Zigmont Right now, we're at an approximate $3 million per quarter
total burn rate. So that includes both operating expenses
and capital expenditures; and we're averaging about
$500,000 to $600,000 per quarter in capital expenditures,
so approximately $2.5 million of the burn relates to
operating expenses. That's a quarterly rate, not a monthly
rate. The monthly rate is approximately $1.0 million and
the nature of our business now is such that we tend to burn
in a relative pro rata fashion over the course of the
quarter because the business is so structured and
standardized. Does that help?
G. Macarthur Yes, that helps. I think it gives the impression, if you do
the numbers, that you're going to run out of money, if you
do those kinds of numbers.
C. Zigmont Right now or at the end of September, we had approximately
$9.5 million of working capital. We have access to a line
of credit and we're anticipating improving financial
results over the course of the coming quarters. I think,
yes, we're okay.
G. Macarthur Okay. Great.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 37
M. Brandofino On the competition, we break the competition up into three
categories. Everybody knows ISDN is one of them. The other
ones are me-too players and those are smaller, either video
equipment resellers that had to do something to compete
against Glowpoint, or smaller network providers that want
to do something to fill up the network that they built. In
that category, we know of one that is about to go under.
The other ones have not made any major inroads and, as
David mentioned before, we've actually attracted some
agents that were looking at some of those and were very
disappointed that they didn't actually have a service.
The other competitors are the larger players, and the two
that we would always keep our eyes on in the U.S. would be
AT&T and Sprint. Sprint has announced three different
services since we started Glowpoint. You cannot get pricing
on it if you try and call Sprint and no one really knows
what to do with that. AT&T offers a VPN-type service,
extremely expensive, if you put all of the numbers
together. It's also a very closed network and you have to
schedule every call off of that particular VPN. So, as of
right now in the U.S., there's no one that's close on an
apples-to-apples comparison of service and you know we
always keep our eyes open.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 38
G. Macarthur Great. Thanks, Mike.
D. Trachtenberg On the last point, in terms of more specifics on the game
plan, I can talk to you big picture, and I had mentioned
before in the remarks, there are really two core areas that
I am driving from a focus perspective for the organization.
I hate to sound simplistic, but it truly is. It's getting
back to our basics of focusing on the operations and making
certain that we have everything we need under our belt to
be a standalone company. What that means is making certain
that our customer experience, and when I say customer, I
mean both our sales agents, as well as our end users, have
a very easy time of working with Glowpoint.
The second thing is really expanding our distribution
channels and making certain that we are selecting those
partners that are going to be able to deliver. Now, part of
it is that we have to deliver for our partners at the same
time. We need to be providing the sales and marketing tools
to get them up and running quickly and to be able to
replicate the knowledge that we have internally out to the
feet on the street.
We will not scale our business from a one-to-one
perspective to have a direct sales force going out and
trying to close deals. Our strategy is an indirect sales
strategy, where we basically replicate our knowledge
through both direct contact with the larger resellers and
indirect contact through on-line tools that gives people
who want to sell Glowpoint access and knowledge to be able
to do it effectively and quickly.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 39
So from a marketing perspective, you're not going to see us
on national television. You're probably not going to see us
on print ads in the Wall Street Journal or the New York
Times. What you are going to see is creating sales and
marketing materials to give to our resellers to be
productive out in the marketplace. You're going to see
guerilla marketing tactics really, I think, focused around
one PR, public relations activity to get the name of
Glowpoint out there, to provide air cover to our resellers
and you will see us doing some activity under certain
verticals.
For example, being able to target wins and successes and
applications in the legal community or in the medical
community, it's much less expensive doing that kind of
targeting, which should have a higher payoff for us,
because we know those are the types of companies that have
been attracted to Glowpoint without a heck of a lot of
marketing on our side. The bottom line is to have Glowpoint
not be the best kept secret in videoconferencing. It's to
be top-of-mind and it's to make certain that people
understand what the solution is and what the benefits are
for being both a Glowpoint reseller, as well as a Glowpoint
user.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 40
G. Macarthur I think that's great and I go back to Mike. It seems to me,
if I could just make it short, you have a unique product in
the market, and I think you've got to distinguish that. I
think it's a fantastic concept and product and you've got
great potential; but you've got to get visibility and make
that determination you've got something unique, as Mike
described. Having been in sales for over 30 years, you've
got to have something to say, this is unique and this is
why.
D. Trachtenberg You're preaching to the choir. We hear you and we
absolutely agree. That's why I was brought on board for a
number of reasons in terms of fitting the profile of the
type of person they were looking for, but I think most
importantly, sales and marketing background with experience
in managing indirect sales channels.
G. Macarthur Right. The last question I have, I think you guys will do
it and I think you've got a great product and I wish you
big success.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 41
Dave, you said in one of your companies, you had a
subscriber up in the northernmost part of the world. Is
that right?
D. Trachtenberg Yes. We actually went from the bottom of the Grand Canyon
to above the Arctic Circle.
G. Macarthur Where was that, Point Barrel?
D. Trachtenberg You know what, I could probably find out exactly what the
location was.
G. Macarthur Did you make a visit up there just to see ...
D. Trachtenberg I, unfortunately, never was able to get up there.
G. Macarthur I was there.
D. Trachtenberg Did you see the installation?
G. Macarthur No. It was in the Navy many years ago ....
D. Trachtenberg Okay.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 42
G. Macarthur I'll let you guys go.
D. Trachtenberg Thanks a lot.
Moderator We have a question from Bill Mauerman with Lone Star Asset
Management. Please go ahead.
B. Mauerman Hello, guys. I wanted to welcome David. I look forward to
his guiding the company through the next phase in
Glowpoint's evolution. I'm really looking forward to that.
D. Trachtenberg That's much appreciated. Thank you.
B. Mauerman I'm sorry that we haven't talked before this conference
call. I had a few questions. I wanted to follow up on
something somebody brought up earlier. When you say you're
going to move from endpoint to location, I understand that,
but just in general, wouldn't a location with 20 endpoints
most likely bill more than a location with one?
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 43
M. Brandofino The potential is there, but as we did this quarter in
separating out the bridging and other revenue, that is more
subject to seasonality and things happening at the
individual companies, than the subscription rate is. So
there will be a set subscription revenue, and we do charge
for additional endpoints at each location, so that will add
to the subscription base, but we separate that revenue out.
It stands to reason that more endpoints will use more
services.
D. Trachtenberg And I really want to be clear; we will be looking at a
number of different metrics internally in terms of how are
we going to be managing the business and understanding what
the different opportunities are. In terms of actually
tracking and reporting publicly to shareholders, etc., to
give them very quick and efficient means of understanding
how we're doing it is clear that the key metric is the
billable location.
Now, there are other things that we're going to be looking
at, for example, to understand how accounts are progressing
over time, whether that's average usage per usage customer,
whether that's zero usage as an early warning system to
really be able to manage by exception, if you will, to
understand what are the core accounts that we need to be
focusing in on, to make certain that our revenue is secure
over the long-term.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 44
So these aren't the only things that the company is going
to be looking at, but in terms of being able to report out
and track against on an ongoing basis, we really want to
pick those key levers that are going to give you the most
information about how the company is doing, but you're
absolutely right. There are other metrics that we're going
to be looking at internally.
B. Mauerman I got you. I guess from our standpoint, though, if you're
selling a lot more locations with a higher concentration of
endpoints than a lower one, the ARPU is going to go up over
time because assuming that more endpoints generate more
revenue the ARPU, you look at the locations in the ARPU;
and if the ARPU has gone up, that means that most likely
the locations have more endpoints on them. Is that a fair
assumption?
M. Brandofino It's a potential. One of the things that we're looking at
is always driving up the revenue per location. The
Webcasting service is an example of a service that can be
used in addition and may drive up usage at a particular
location and additional revenue. But we still think that
the basic metric of the subscriber fee is the best one to
follow at this point and we will be following all of the
other metrics, but just categorizing them a little
differently, so that you guys can clearly see the growth in
subscription, which should trail along all of the other
services.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 45
B. Mauerman Got you. The second, it's kind of like a group of
questions, but when I was looking at Polycom's financials,
they sold 12,000 units, which I guess would equate into
endpoints.
M. Brandofino That's correct.
B. Mauerman I know I'm looking at endpoints and I apologize for using
endpoints here, but in the press release pre-announcing the
quarter you said that you had 179 endpoints during the
quarter. I was just kind of curious where the other 11,800
roughly endpoints ended up.
By the same token, I'll break it into two, but are they
going on ISDN or some other IP service? It doesn't sound
like there's any other IP service out there for them to
choose. I'm just kind of curious, where those people are
going?
M. Brandofino A couple of things to keep in mind. One is that still, 80%
to 85% of the systems are being put on ISDN. The other
thing is there are people running video on their own
networks and that's not contrary to what we would like to
see. We would like to see more people doing that, so there
are some people playing more with IP. The other thing is
that just because Polycom sold them doesn't mean that they
went into production or are actually being used yet.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 46
B. Mauerman Got you.
M. Brandofino So you don't know where these are.
D. Trachtenberg But I do want to say that you bring up a very interesting
point, though. The way that the company, because of its
relationship with Wire One had been structured before, it
was very difficult to be able to play with other potential
distribution partners. One of the key strategic reasons for
the separation between the hardware and the services side
was to give us the flexibility and the freedom to actually
be able to look for a strategic partnership with companies
like Polycom, like Tandberg, like Sony, etc. And so in
terms of looking at how we go to market, it's not just
going after the resellers, although extremely important,
like Wire One and like our most recent one that we
announced yesterday, but also looking at strategic
relationships with the hardware manufacturers to be able to
piggyback on the efforts of what they're doing in terms of
selling into the marketplace. So we have the flexibility of
doing that now. It's now about execution and creating
partnership programs that drive benefits for both parties.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 47
B. Mauerman Got you.
And then kind of as a follow up, in the pre-announcement it
talked about how the number, and it used endpoints in that
press release, which is why I'm using it, but even
locations probably went down, but the reason it went down
is because of the transition of the Wire One sales force.
I just have some concerns that now the Wire One sales force
is basically Gores Technology and they're not Wire One.
Between now and when CMS comes on-line in the first quarter
of 2004 during this transition period, are we going to
continue to see a decrease in the sales or is Wire One
going to be able to come back up-to-speed? Just kind of if
you could talk about this transition period and what you
see happening. I guess the fact that you brought up the
Wire One transition as being a reason for the decrease in
sales is what has me a little concerned.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 48
D. Trachtenberg Yes. I understand your concern. Since the transition, we
continue to see orders being placed between Wire One and
with Glowpoint. There are a handful of other agents that I
alluded to in my remarks that are also driving sales for
the company. The other thing to remember is, there is still
a backlog of sales that we're continuing to add on to the
network that are going to be adding subscriber revenue in
this quarter. The real focus for the company is to build up
that backlog, to make certain that there is a continual
backlog of sites to be installed. That's where CMS comes
in. That's where other announcements that will be made over
the weeks and months to come in terms of other distribution
partners.
But as I also mentioned, we are still focused and Wire One
is still a very important partner for us. There is a core
group of Wire One sales agents, who I have talked to
personally, who have daily conversations with Glowpoint
employees, who are focused on generating sales out through
the indirect distribution channel.
I am optimistic that there will continue to be sales
through the Wire One channel because I see them coming
across my desk on a daily and weekly basis since I've been
here, but I'm not going to pull any punches. We need to
just diversify our distribution channels. That is one of my
core focuses for the fourth quarter and well beyond. We've
already been making progress. I think the announcement with
CMS and others that will be upcoming should show you that
there are big players out there, who want to sell Glowpoint
and want a piece of the action.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 49
B. Mauerman I understand that and I appreciate that, but I guess, like
with CMS, it's going to take them a quarter/quarter and a
half to get up-to-speed. Is that going to be the case with
most of the other ones that you sign up?
D. Trachtenberg I think it's going to vary on the type of partner we're
talking about. If they have experience in the domain, if
you will, it's going to be a faster process. As Glowpoint
develops more on-line and automated tools, it's going to be
a faster process, but I agree with you and it's something
that I also talked about. It will take time to get agents
up and running and efficient selling the service. That's
why we also have people within Glowpoint who can help
partner with some of the agents to help close the sales for
some of the big deals that are out there.
I hear your concern. It's a major focus of ours and it's
important for us to set the expectations of once we bring a
reseller like CMS on board and they have 400 feet on the
street, this is not something that's going to be generating
installs in the next week. They need to be trained. They
need to be given the tools to be able to go out there. They
need to find the deals. They need to close the deals. And
then comes the provisioning process, which you know also
takes time.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 50
So I think your quarter to quarter and a half is probably
in the right ballpark in terms of going from when we
announced a deal, and when we can start seeing backlog
coming into our systems from a contract perspective, which
will then be scheduled for installing and driving revenue.
I've got a multi-fold strategy. One is to find new
distribution partners and get them trained and running as
quickly as possible.
Two is to continue to work with Wire One and incent them to
keep going out, giving them the tools and giving them the
programs to be able to go out and sell effectively and
efficiently and really focusing in on those sales agents
who have sold Glowpoint in the past, who have embraced the
product and want to continue to sell. That's where we're
going to focus our energies.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 51
And third is to really accelerate moving the backlog into
revenue generating subscriber locations. That's the name of
the game, getting them on the network, getting them billing
and driving our subscription revenue up. So it really is a
multi-fold effort, but it is going to take time to build up
the alternate distribution channels.
B. Mauerman This question will be easy, but when I was reading the CMS
news announcement I guess I've never seen these terms
before, but a telecom master agency and 400 premier agents.
Is that basically they have like resellers underneath them
and they're not actually 400 sales people in their
organization, but they funnel product and package it out to
other people?
D. Trachtenberg Absolutely. What they do is they do sort of the master
negotiation, if you will; provide sales and marketing tools
and provide a lot of other on-line resources, really for
their sub agents, who then sell either their complete
portfolio or sort of a sub-segment of the portfolio of
things that they have to sell through their relationships
with Sprint, with Raindance, with, now, Glowpoint. It's a
recurring revenue strategy both for them, in terms of what
they're getting from their different relationships and then
they pass a piece of that revenue share, if you will, down
to their sales agent. So they're not employees of CMS, but
they are tied at the hip in terms of their operations, as
well as at the end of the day, it's all about driving sales
and driving commissions.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 52
B. Mauerman Then I just have a couple of quick questions for Chris,
kind of financial questions. On the $4.9 million
convertible debenture, when does that mature?
C. Zigmont It matures the later of February 2, 2004 or three months
after our line of credit with JPMorgan matures, and that
matures May of 2005, so I target it at August of 2005.
B. Mauerman I was just worried about with the stock price being below
the conversion price, them wanting to get their money back.
I'm glad to hear it's August 5th.
On the cash you received, the $16 million or a little over
$16 million versus the $19 million that in the press
release it said you were paying, I guess, all of that was
the commission paid to the broker or the person who put the
deal together?
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 53
C. Zigmont It's a combination of things. There are closing costs
related to the sale. That's true. What I also netted in
that number were where we did have a loss from discontinued
VSB operations in our income statement in the quarter.
There were some costs that we ended up bearing and so
that's the other big chunk of cost. So that's a net number
after taking into account those two factors.
B. Mauerman And then on the break-even level, I wasn't 100% clear on
that. Did you say it's $2.2 million in monthly revenue?
C. Zigmont Monthly revenue, yes.
B. Mauerman So that's got to be about $6.6 million...
C. Zigmont Yes, $6.5 million/$6.6 million, yes.
D. Trachtenberg And that's based on what we understand today. As I get my
arms around the business, again, I've only been here for
four weeks and continue to be focusing on understanding
what the key levers are, we'll be providing better guidance
as we have a more credible view of what that's going to
look like.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 54
B. Mauerman Can you just comment a little bit on why the break-even
date slipped from Q2 of '04 that was mentioned in the last
conference call? And I believe that's all of my questions,
so thanks.
C. Zigmont I think, Bill, the reality of what did transpire in Q3 in
terms of the endpoints we quoted in the pre-release, it
does end up having a rippling effect over the coming
quarters; and what we've tried to do in terms of this
latest set of projections is factor in this transition that
we're going through that David attempted to describe a
little earlier and give rise to that in the projections. I
think when we did it ended up pushing the date out that
couple of quarters and it strikes us as being more
realistic.
D. Trachtenberg And I think we just have a much more realistic view of our
jumping off point, I think, as Chris is alluding to, than
when those numbers were given. I think there's been a lot
of analysis, a lot of focus on this business, now as a
standalone business, which is very different than what it
looked like just a quarter ago. So understanding where we
are now will definitely give us better insight as to where
we're headed.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 55
B. Mauerman I'm sorry for this, but a quick follow-up on that. Chris,
you mentioned that you have enough cash to get through the
next 12 months; but since break-even, I guess, would be 15
months away, do you think you have enough cash to get to
break-even?
C. Zigmont I guess for the call here I'm just going to limit my
comments to that coming 12 months. I think there are so
many factors, Bill, that are going to play out over the
coming 12 months that it's always hard to pinpoint things
that far down the road, especially with such new and
exciting resellers being signed up, what the relative
volumes are, when they're going to start coming on. So it's
hard to go past that, but I'm comfortable with the outlook
for the next 12 months.
B. Mauerman Okay. Thanks a lot for taking all of my questions. I really
appreciate it and I look forward to the next call.
Moderator We have a question from Frank Kups with Wachovia
Securities. Please go ahead.
F. Kups I have a question on the endpoints on ISDN. I guess, Mike,
this might be more targeted toward you. Have we started to
see any conversion yet from ISDN users over to the
Glowpoint network, and what do you see on that end?
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 56
Also, the percentage of customers that are out there that
run on their own private network, how do we benefit from a
company, let's say, that has their own private network out
there? What can we do for them?
M. Brandofino First, about 65% to 70% of our customers on Glowpoint right
now were converted over from ISDN. The way we know that is,
they had bought from Wire One before, so we tracked that
they had systems up and running on ISDN before. So we know
that's about 65%.
The others are either new to Wire One or new to Glowpoint,
and I don't have that data, but it stands to reason that a
good percentage of those came from ISDN. So we are
converting people off of ISDN.
As far as people putting video on their own networks, if
you look at the phone analogy, when people started buying
PBXs and they theoretically had free voice office to
office, all that did was put phones in every office. That
didn't decrease the need or the usage of services by
carriers. We really believe that if we help customers get
video on their own networks, so they start doing video
internally, number one, no company has the infrastructure
to support video over IP across their whole infrastructure,
because it would just be too cost prohibitive. Two, they
need to talk to other folks, other vendors, other
customers, partners and the way to do that, their options
would be the Internet, go back to ISDN or use a quality
service like Glowpoint.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 57
In addition, some of the other features that we offer and
our ability to reach international locations at a very cost
effective rate makes it attractive for customers to partner
with us and connect their networks to us. We have a number
of those already in place that have a large number of
systems on their own network, but still connect to
Glowpoint to get access to our bridging and gateway
services and our operators or simply to have us help manage
their traffic, so that they know that they can depend on
getting outside of their network with a premier IP service.
So we really see that more deployment of video on customer
IP networks is an advantage to us over the long haul.
F. Kups Great. Do we still see more endpoints, and I hate to use
the endpoint term, as most people do as we kind of
transition to a circuit...
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 58
D. Trachtenberg We'll let you get away with it this time.
F. Kups Okay, David. Thank you. Do we still see more and more
customers that have endpoints installed adding more
endpoints to their network and is each endpoint, I guess
I'm so used to the endpoint term and billing on endpoints.
If you have a location and you've got ten endpoints up on a
location, each endpoint that's currently being billed for
each endpoint plus the network access for the location,
correct?
M. Brandofino Yes. There are the different packages that we have, so with
a T1 package, which is $799, we include three endpoints, IP
addresses with that. So they can attach three video
systems. Every additional system we charge $25 extra, so we
add that on to the monthly subscription fee.
Of course, any usage that is generated by those three
systems will add to their minutes and theoretically, chew
at their ten-hour package, if it's a ten-hour package and
of course, if they use bridging or gateway it's by
endpoint.
F. Kups Okay. So the bridging and gateway charges are still by
endpoint?
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 59
D. Trachtenberg Correct, but to be really clear, there's a subscription
plan associated with the billable location, not the
endpoint. So there's not a separate bill or separate
subscription plan for the five or six endpoints that may be
affiliated with that subscriber location. It's one billable
subscriber location, and that's how the customer is looking
at it and that's how we need to be looking at it. I know
there will be a transition here, but trust me, we'll get
through it. We've already gotten through it internally
here.
F. Kups Great. The H.323 bridging, that's more associated with
Glowpoint than the legacy .320 bridging, correct?
M. Brandofino It is directly. We are the only bridging provider on
Glowpoint and all of that IP bridging is derived from
Glowpoint customers.
F. Kups Now the .320 bridging was from ISDN, correct?
D. Trachtenberg Correct.
F. Kups Now do we still offer that service but the reason we're
seeing the revenue numbers decrease there, I'm assuming, is
that as we sign more and more customers up to Glowpoint,
and they ask people to put more circuits in the time that
they share with each other they don't need to go to the
.320 bridge any more, correct?
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 60
M. Brandofino Correct. The whole H.320 bridging industry has seen a
decline in usage for a couple of reasons, one of which is
people see it as a penalty for using more minutes, because
of the charge structure and two, the quality isn't good.
What we see on Glowpoint is the exact reverse. Our pricing
model is somewhat different, so there's not a penalty for
using more bridging, as you would imagine there is on being
charged a long distance charge and ISDN port fees. In
addition, too, the quality is good and they don't mind
doing more bridge calls.
F. Kups The next question I had for you has to do with the
resellers versus when we had our direct sales force. The
cost of the direct sales force versus the cost of the
reseller, how does that transpire down to the cost of goods
sold category? Is a reseller cheaper for us than when we
had the direct sales force?
C. Zigmont Frank, I think that they're pretty comparable when all is
said and done. We've attempted to make the commission
structure relatively equal because we were trying to do
this when we did have the direct sales force and so you
couldn't be too far out of line. I think, generally, it's a
little less expensive with the resellers.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 61
F. Kups And there are other ancillary costs associated with having
a direct sales force?
C. Zigmont Absolutely.
F. Kups ... insurance and things like that.
C. Zigmont Absolutely.
F. Kups I still have concern over this $4.8 million on the
convertible bond. It seems as though and, David, I guess
this may be a good question for you or for Chris. I read
through the Form 8-K, I think that was put out in December
and I'm not quite sure. There are a lot provisions in here
and there's a lot of language that, I'm not a lawyer and I
don't really understand it. But it seems like there are a
lot of re-adjustments and a lot of figures in here that can
change, due to certain triggering events.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 62
I've been involved in the company for three and a half
years and we've seen a lot of investment banking
activities. We've seen a lot of dilutions of stock. I'm
concerned. I'm concerned about this bond. I'm concerned
about the stock price and the stock price has declined
dramatically since you joined on board, David. None of
which I believe is your fault; I welcome you aboard and I'm
excited about having you as the new CEO.
I've got concerns over the bond and over what other type of
investment banking activities might affect the stock. We've
seen it in 1991 (sic). We've seen it in 1992 (sic). It
seems to be a continual trend of the company.
C. Zigmont Frank, we've actually had our attorneys look at the
agreement and evaluate the different triggers and such and
as we sit here today none of them have occurred that would
give rise to an adjustment to the conversion price of the
notes. That's what we can say. That's where we stand today.
F. Kups When the note becomes due, let's go to when the note
becomes due, is this a cash payment on the note if the
stock is below the exercise price or is it still a stock
payment?
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 63
D. Trachtenberg First off, the maturity date is out in August of 2005, just
so that we're clear on that.
F. Kups Doesn't that depend on the credit line or no?
C. Zigmont It does, but I'm making the presumption the credit line is
in place until May of 2005 at the very least. And off the
top of my head, I don't recall all of the triggers in terms
of I think it's going to come down to the investors, the
holder's predisposition to whether to convert or be paid
out in cash and we can't anticipate that now.
F. Kups So that's something that we can't really figure out right
now, what their intention is?
C. Zigmont Yes.
F. Kups I think that sums it up for my questions. David, welcome
aboard.
D. Trachtenberg Thank you very much. Let's take one more question, if there
is, and then let's wrap up since it's getting close to 6:30
here.
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Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 64
Moderator We have a question from Jim Wukie with WIM. Please go
ahead.
J. Wukie Since this is typically when companies give their
mid-quarter update, can you give us a sense on how the
first 45 days of the quarter are tracking? And secondly,
hopefully, it's just an aberration, as far as when we're
going to get out earnings going forward?
D. Trachtenberg I think that's fair to say. Again, this is literally my
fourth week to the day. There is a lot that I need to get
my arms around. I'm not making excuses. I don't think you
would have wanted me to do anything other than what I was
focused in on, which was understanding the operations and
making certain that what we're coming out to you with was
something that was supportable and made sense. I think you
can see that there's been a lot more shared by definition
than has been shared in the past on the company, and I
think a very different view of how to move this company
forward to be successful.
So our objective is to be out in a much more normal
timeframe post the close of a quarter. Obviously, at the
close of the year, we're going to be taking a little bit
more time to make certain that we've got everything
together, just to give you, for example, the 2003 annual
results after we close the books in December.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 65
So that is clearly our intention, but we thought it was
important for me to at least have four weeks under my belt
to have this type of information, this type of analysis
done, so we could get out here and not just give you
numbers, but to give you good numbers, to give you numbers
with explanation and to give you a view of where we look at
the business going forward.
C. Zigmont Jim, I think we would still want watchers of the company to
know that, there's still that pattern of how business takes
place in this industry during the course of a fiscal
quarter, which is in the first month or two of the quarter,
you're generally dealing with a small percentage of the
endpoint sales, let's say, by the hardware resellers and we
end up being impacted by that pattern. So we're going to
continue to have a lot of our activity in the third month
of the fiscal quarter. So at this point in time, it's kind
of hard to make a statement without potentially getting it
wrong.
J. Wukie Do you have any success stories you can share with us over
the last 45 days?
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 66
D. Trachtenberg What was the question?
J. Wukie Do you have any success stories that you can share with us?
D. Trachtenberg I think one of the key success stories, a couple of them,
one we announced yesterday, which was bringing a very large
reseller with 400 feet on the street, where we're going to
be focusing our resources on making certain that they are
up and running in a timely manner to be impacting our
subscription revenue as quickly as possible in the first
quarter of 2004; a real focus on automating our tools, for
example, the launch of isellglowpoint.com, which is really
very much of a phase one in terms of getting all of the
sales and marketing tools that our agents will need to get
up and running to manage their accounts and manage their
business.
I'll tell you, the wins over the last four weeks have been
getting this organization focused to being a standalone
company with the right operational elements, the right
metrics to be tracking and the right direction in terms of
what is important, what we need to do that's going to
improve the business, drive subscription revenue and get to
the break-even point that we're all looking forward to that
we talked about earlier.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 67
The real win is that we understand what we need to do.
We've got the plans in place to do it and now we need to
take the time to focus and execute.
J. Wukie Looking at the stock price, David, it appears that we're
under constant pressure. It's almost like manipulation. I
think Frank noted our investment banking activities in the
past have been, to put it mildly, a disaster. The players
involved, they've constantly been toxic deals and that's
completely detrimental to the shareholder. I have concerns
looking at that cash level, that we're going to be going
down the same road and looking at further dilution.
You know, it's very scary as a large shareholder in this
company. I see the people involved - the Ramius's of the
world - and it's sickening. It's very concerning. I just
hope that this company can generate sufficient cash, so we
don't have to go back to the market for future deals,
because they've been a disaster. Can you give us some sense
on that front?
D. Trachtenberg I appreciate your comments. Obviously, I'm not happy with
where the stock price is right now, but I'm focused on the
longer term. I can't look at it every day and figure, what
can I do today to make this go up. I've got to look at what
do I need to do over the long haul, to make this a decreed
value for the shareholders. You know, we're going to
continue to evaluate, as we were talking about earlier,
what our cash needs are as the business progresses and
we're going to look at all of the options that make sense
for the company and for all of our shareholders. The best I
can do is to let you know that we are, as we should be and
as we are, committed to creating shareholder value and
focusing on the business is going to get us there and I
can't say much more than that.
GLOWPOINT, INC.
Host: David Trachtenberg
November 12, 2003/4:00 p.m. CST
Page 68
J. Wukie Okay. Thanks and good luck, David.
D. Trachtenberg Thank you very much and thanks for your comments.
I think we're going to wrap up the call now.
Moderator Thank you. Ladies and gentlemen, that does conclude our
conference for today. Thank you for your participation and
for using AT&T Executive Teleconference. You may now
disconnect.