Oblong Inc.

Hello, and welcome to the oblong fourth quarter and year-end 2020 earnings results conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Brett Moss with Hayden IR. Please go ahead, Brett.

Thank you, Operator. I'd like to welcome everybody to the call. Hosting the call today are Oblong's Chairman and CEO, Pete Holst, CFO David Clark. Please be aware some of the comments made during our call may contain forward-looking statements within the meaning of federal securities laws. Statements about our beliefs and expectations containing words such as may, could, would, will, should, believe, expect, anticipate, and similar expressions constitute forward-looking statements. These statements involve risks and uncertainties regarding our operations and our future results that could cause higher risk could cause actual results to differ materially from the management's current expectations. In addition, today's call includes non-GAAP financial measures, and a reconciliation of such measures to GAAP measures is contained in the press release issued today. We can encourage you to review the safe harbor statements and risk factors contained in the company's earnings release and its infilings with the SEC, including, without limitation, the most recent annual report on Form 10-K and other periodic reports, which identify specific risk factors that may also cause actual results or events to differ materially from those described in the four linking statements. Copies of the company's most recent reports on Form 10-K and 10-Q may be obtained by the company's website, www.oblong.com, or at the SEC website, sec.gov. The company does not undertake to publicly update or revise any forward-looking statements after the call or date of this call. I would also like to remind everyone that this call will be available for replay through April 13th. A link to the website replay of the call was also provided in the earnings release and is available on the company's website at oblong.com. And now I'd like to turn the call over to the CEO of Oblong, Pete Hulse. Pete, the floor is yours.

Thanks, Brett. Good afternoon, and thank you, everyone, for joining us today. 2020 was a significant year for Oblong, ending with momentum and marked by another quarter of sequential revenue growth, along with a measurable increase in our pipeline of new business opportunities. Though we achieved this progress amidst a pandemic that totally shut down our primary end market, the in-conference room, is both impressive and an incredible attestation to the team's ability to gel and focus on building great user experiences. Let's briefly look at fourth quarter achievements. In the fourth quarter, with COVID peaking across most of the United States and people continuing to work from home, we delivered $1.6 million in core product revenue from our mezzanine collaboration suite, We completed two financings, raising $7 million in net proceeds to fortify our balance sheet and give us capital to grow. We eliminated $5.6 million in debt for $2.5 million to strengthen our balance sheet and overall capital structure. We continued to improve gross margins three quarters in a row, and we narrowed our losses by half again from the prior quarter. And we enter 21 now with the best pipeline in our history, particularly in larger deals with qualified opportunities in excess of 100 rooms. Our focus has been on training and developing key partners in geographies, where we believe a return to the office is likely sooner than later. As the market begins to reopen, we believe our sales model is both highly efficient and sized proportionally to leading indicators in our channel. Our most prominent source of lead generation continues to be with our primary partner, Cisco, who we believe with their unmatched combination of network, security, and collaboration solutions are at the forefront of primary beneficiaries as enterprises look to reopen their offices. Recent Cisco research suggests there are two significant drivers in the reopening process. The first is a strong desire for more advanced tools. with over 96 percent of respondents to their recent research efforts wanting intelligent technology to improve their work environments. The second is a prioritization of the employee experience, with over 86 percent of respondents stating that empowering a distributed workforce with seamless access to applications and a high-quality collaborative experience is either important or extremely important. Interestingly enough, this jumps to over 95 percent for companies with more than 1,000 employees. With our singular focus on employee engagement and user experience, we were recently awarded a new Cisco certification in the content experiences category. This new certification offers WebEx video device users a more seamless user experience, dramatically increasing their ability to share and engage with live content streams. Mezzanine's integration with WebEx allows distributed teams to share up to 10 live streams of content, simultaneously delivering both a unique and unsurpassed level of user engagement. In addition to in-room experiences, Oblong's certified integration enables remote participants to also be full participants in the meeting. By using newly added features in WebEx, touch-enabled devices can now remotely connect participants to a mezzanine experience. As we look back over the last 12 months, in many ways, our performance during the pandemic is all the more impressive. First and foremost, we sell a product today that goes into enterprise conference rooms. One year ago, everyone who was using those rooms went home. Lights went dark, and IT buyers went to the sidelines. Every IT buyer we spoke to back in March and April of last year said, call me when this pandemic ends. It was unnerving to say the least. In spite of that, we raised $2.4 million very quickly from the SBA within three weeks of broad stay-at-home orders being issued. We restructured our operating expenses significantly and worked quickly to simplify our product offerings with our core partners. We're also building a sales pipeline that was both tangible and aligned with the reopening sales cycle. Near the end of the second quarter, we implemented a new pricing model for our flagship mezzanine suite of products, making pricing more attractive for customers by offering CapEx and OpEx models that allowed them to include us in potential deals not otherwise available historically. As a result, We are now involved in almost three times the amount of larger-scale opportunities compared to the prior nine months, representing more than 10,000 conference rooms across hundreds of thousands of potential individual users. The new pricing structure and greater focus on cost of goods sold are also driving higher gross margins, which, combined with the actions we took in the late second quarter of 2020 to right-size the organization, have significantly reduced our overhead, putting us on a trajectory to grow the business thoughtfully and symmetrically to demand. Fast forward three quarters from the inception of the pandemic, and with a great majority of commercial real estate still remaining either at a minimal or shuttered state, we still sold almost 1.6 million of our core products in the fourth quarter. We improved gross margins for the third quarter in a row, and we improved our adjusted EBITDA loss by approximately 600,000 on a sequential quarterly basis. Again, an improvement from both Q2 and Q3. But now the pandemic is beginning to show signs of abating. We are incredibly encouraged with the rollout of vaccines across the U.S. and other countries who have been diligent in their approach to managing reopenings. Businesses are starting to think about what return to work will look like. In fact, IT leaders have been thinking about that for some time, scheduling demonstrations of next-generation technologies like Oblong and working to synergize the work-from-home and return-to-work mindsets, recognizing that we'll have something of a hybrid model in most cases for some time to come. Prompted by accelerated vaccination in the United States and recent reopening announcements from major corporations, we've been invited to bid on a number of larger scale opportunities. In fact, this is really just accelerated in the last 30 days. Our internal metric to define larger scale is both a combination of conference rooms and more importantly, looking down range, potential cloud users of our prospective new offerings. Recent opportunities have exceeded both of those metrics, indicating growing demand for hybrid offerings at scale. There are a number of indicators that suggest our growing confidence in 2021 and 22 is warranted. Oblong is, in fact, a major reopening play. As businesses unlock their doors, conference rooms will need to be updated. The old ways of sitting across a conference table and staring at linear content will no longer be sufficient to either engage or entice workers to return to the office. COVID demonstrated that things must change. Going forward, half the participants in a given meeting or work group will be remote and very likely working from upgraded home offices. Social distancing will still be prevalent and enterprises must harness technology to enable collaboration and engagement in new ways to create greater productivity. Those that don't will simply be left behind. And simply put, Oblong makes all of that possible. And we're working with one of the global leaders in IT in Cisco, who we believe is poised to break out in the next 24 months. Our progress on developing the cloud offering is coming along very nicely. We expect to release a beta version to a select group of existing customers in April and believe the addressable market for this complementary service is now easily accessible. in the millions of users now that COVID has dramatically increased the awareness and usage of virtual meeting services. As evidenced by the demand for more advanced and engaging technologies, we recently pre-sold our first annual recurring revenue cloud deal based solely on an early version of our cloud service, generating $75,000 in ARR in 2021. Based on this prototype, The same customer has now come back and asked us to generate a proposal for a hybrid cloud offering of mezzanine when we release a full version in the second half of 21. The scope of that proposal is 1,000 conference rooms and over 100,000 cloud users. Now, let me just turn the call over to David to quickly discuss the financial results.