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Glowpoint, Inc. (NYSEMKT:GLOW)

Q2 2013 Earnings Conference Call

August 8, 2013 16:30 ET

Executives

Pete Holst - President and Chief Executive Officer

David Clark - Chief Financial Officer

Operator

Good afternoon, everyone. Welcome to Glowpoint’s Second Quarter 2013 Results Conference Call. Before we begin, I want to remind listeners that this call is being webcast live over the Internet and then a webcast replay will also be available on the company’s website, www.glowpoint.com following the call. The call is being hosted by the company’s CEO and President, Pete Holst and CFO, David Clark. There will be a brief question-and-answer period following the company’s prepared remarks.

Slide two summarizes the company’s Safe Harbor statement, the company’s partial discussion of its financial results should be read in conjunction with the condensed consolidated financial statements and related notes contained in the company’s quarterly report on Form 10-Q for the three months ended June 30, 2013 filed today with the SEC. Various remarks about the company’s future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under The Private Securities Litigation Reform Act of 1995. Such remarks are valid only as of today.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company’s most recent Annual Report on Form 10-K filed with the SEC. In addition, today’s call and webcast may include non-GAAP financial measures within the meaning of SEC Regulation G.

I would now like to turn the call over to Pete Holst, Glowpoint’s CEO and President. Please go ahead, sir.

Peter Holst

Thanks, Jen. Thanks everyone and thanks for joining our call today. Like prior calls, I will review our progress to-date and have David provide more detail on second quarter financials. To conclude, I will discuss the direction for 2013 and beyond. During the second quarter, we continue to focus on simplifying service delivery and customer engagement. As mentioned in the prior call, we are in the midst of a transition, but believe the Glowpoint platform will ultimately enable our partners and customers to provide very secure, flexible, and dynamic video solutions to their constituents in the months ahead.

On our Q1 call, I discussed the need to review the company’s underlying products roadmap, systems and go-to-market plans to measure them in context of not only where the broader market is headed, but perhaps most importantly what services our customers were likely to procure over the next 24 to 36 months. I also outlined the need to drive better operating efficiencies in the near-term to produce consistent and sustainable cash flow results. To that end, we expanded our product team with a focus on outside end methodology to better segment our services.

Our product portfolio decisions will initially have more requirements to support them compared to previous systems. However, those investments are critical to our long-term strategy. Downstream benefits from these product initiatives will enable us to reduce spending in some areas and deploy savings in other value-creating opportunities. We also delivered a new website focused on simplifying our messaging and better aligning with customer demand. Our development team has been working aggressively to combine systems from the Affinity acquisition in parallel with new service launches projected in the second half of 2013.

We have reduced expenses in non-core areas of the business and we’ll continue to realign investment and other resources for the rest of the year. These short-term efforts have yielded measurable gains in both operating cash flow and adjusted EBITDA. As we work towards our product and service launches throughout this year, I continue to view 2013 as a year of investment, where we will look to position ourselves appropriately for sustainable growth in 2014 and beyond. The decisions we make are particularly important to us this year as those investments will be the foundation for innovation, quality, our cost model and growth for Glowpoint. Over the next three quarters, we will be increasing our investment to support the rollout of new services and demonstrate that Glowpoint has established itself as a leading player in next generation video service management solutions for both our partners and customers alike.

On that note, let me pass it over to David Clark to walk through our Q2 financials. David?

David Clark

Thanks, Pete. I will begin with a review of our revenue for the quarter as summarized on slide four. Revenue for the second quarter of 2013 totaled $8.7 million, up 28% from $6.8 million in the second quarter of 2012. This increase is due to revenue contribution from Affinity in the second quarter of 2013, whereas the second quarter of last year does not include results from Affinity since the acquisition closed in October 2012. Revenue for the second quarter of 2013 increased 3% sequentially as compared to $8.5 million for the first quarter of 2013. This increase was due to an increase in professional and other services revenue partially offset by a slight decline in managed services.

Turning to slide five, this shows our statement of operations for Q2 as compared to Q1 2013. On a sequential basis, income from operations of $269,000 for Q2 2013 significantly improved as compared to a loss from operations of $1.6 million for the first quarter of 2013. Operating expenses were $8.5 million in Q2, 2013, a decrease of $1.6 million compared to Q1 of this year. This decrease was primarily due to a decrease of $1.4 million in G&A expenses. The decrease in G&A from Q1 to Q2 was driven by several factors, a decrease of $517,000 in non-cash stock compensation expense, a decrease of $391,000 in severance charges, a decrease of $331,000 in asset impairment charges, and a decrease of $240,000 in acquisition costs.

Moving to the next slide, slide six summarizes the reconciliation of net income or loss to adjusted EBITDA. As shown here, certain items are added back to net income or loss to arrive at adjusted EBITDA, an important measure management uses to assess the operating performance of the company. Adjusted EBITDA increased to $1.2 million for the second quarter of 2013 as compared to $837,000 for the first quarter of this year and $850,000 for the second quarter of 2012. The improvement in adjusted EBITDA from Q1 to Q2 is primarily due to an increase in revenue of $232,000, and a net total decrease in global managed services and network and infrastructure expenses of $133,000.

Turning to slide seven, I will summarize key data for our cash flow and balance sheet. We generated positive cash flow from operations of $1.1 million for the second quarter of 2013 as compared with $264,000 in the first quarter. We paid down $280,000 on our revolving line of credit during the second quarter, and we ended the quarter with a cash position of $2.8 million, an increase of $638,000 over our cash position of $2.2 million at the end of the first quarter of 2013. And we ended the second quarter with positive working capital of $651,000. As we look forward to the second half of 2013, we’ll continue to carefully manage our operating expenses, and we expect to generate positive adjusted EBITDA and cash flow from operations for the second half of the year.

Now, I will turn the call back over to Pete.

Peter Holst

Thank you. Today, if you look at Glowpoint, we are a leaner, more efficient company that is focused more on creating a new set of systems and processes to generate long-term value for our shareholders. I don’t expect the changes implemented to-date or those in the near future to yield immediate revenue impact on building the business and positioning our service platform for market demands in 2014 and beyond.

As I mentioned earlier, the market for video products and services remains both fragmented and highly competitive making it difficult to provide specific guidance through this transformational period across the entire industry. Throughout the remainder of 2013, the company will continue to invest in infrastructure and automation to expand and support some of our core applications, but the primary focus will be on those we currently have in development. The company will also invest substantial resources to revolve our partner program into a leading cross platform application and launch other revenue initiatives associated with new services and emerging mobile opportunities.

The company will also continue to implement the cost savings and process improving initiatives that started in April. In order to drive greater efficiency throughout the company and redirect capital from these savings to areas of investment that will drive future revenue growth. Based on the competitive market dynamics, demand for a combination of self-serve and high-touch applications and our collective investments in people and process change, the company anticipates revenue for the rest of 2013 to be consistent with the results from the first half of the year.

The first six months have proven to be both exciting and challenging for our team, and we are looking forward to the next stage of transition this year. With strong and steady execution, we will be able to capitalize on a pivotal shift in the industry enabling Glowpoint to be a leader in service management for years to come. This concludes the formal presentation portion of the conference call. Jen, you may open the call for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions) There are no questions from the telephone at this time.

Peter Holst

Great, Jen, we happened to have a question on the web. The question from the web is has there been any reduction of headcount as the result of the acquisition of Affinity? The answer to that is yes, there has been a reduction in headcount as a result. And what is the current headcount and where do you see that number going over the next year or two? On a pro forma basis, as I recall when Affinity was acquired, I believe the pro forma number for headcount was around 140, about 140 total heads. Today, the current headcount on a full-time equivalent basis is approximately 117 heads.

Okay, Jen, there is no other questions from the phone side. On behalf of the entire management team here at Glowpoint, I’d like to thank everyone again for the participation on the call and we appreciate your continued support.

Operator

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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