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spk00: Good day, everyone, and welcome to the Oblong Incorporated Second Quarter 2021 Earnings Results Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Brett Moss, Hayden IR. Please go ahead.
spk01: Thank you, Operator. I'd like to welcome everybody to today's call. Hosting the call today are Oblong Chairman and CEO Peter Holst and CFO David Clark. Please be aware that 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 actual results to differ materially from management's current expectations. In addition, today's call includes non-GAAP financial measures. Reconciliation of such measures to GAAP measures is contained in the press release issued today. We encourage you to review the safe harbor statement and risk factors contained in the company's earnings release and findings with the SEC including, without limitation, our most recent annual report on Form 10-K and other periodic reports that identify specific risk factors and may also cause actual results or events to differ maturely from those described in the forward-looking statements. Copies of the company's most recent reports on Form 10-K and 10-Q may be obtained on the company's website, oblong.com, or 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 August 25th. A link to the website replay of the call is also provided in the earnings release and is available on the company's website, oblong.com. And now to the caller, the CEO of Oblong, Peter Hulse. Peter, the floor is yours.
spk03: Thanks, Brett, and thanks, Christine, and thank you, everyone, who has taken the time to join the call today. During the second quarter, the company made significant progress in product development, team expansion, capital formation, and customer engagement. While we continue to see a prolonged effect of COVID on most of the return to office initiatives, our momentum, both internally and externally, remains very positive and directionally sound. In terms of financial results for the second quarter, they were generally in line with our expectations and prior guidance, given the macro effects of COVID variants on office usage across the globe. Revenue was $2 million, up moderately from the prior quarter, as were sales of our core product mezzanine. Gross margins also had an uptick and losses narrowed proportionally. On a year-over-year basis, revenue was down, although virtually all of that variance is directly attributable to either non-core or discontinued products and services we believe are incongruent with our vision of the product in the future. With respect to product development, we launched an updated trial version of our multi-share service and added some interesting user experience features. Based on great feedback from our testing group, our team is very nimble and functional in the engineering area as they work on transitioning from hardware-based systems to hybrid systems and designs that accommodate both in-room and remote engagement from the cloud. Recently, we've seen user engagement pick up, and the feedback we've received suggests there are a number of potential verticals and specific use cases for multi-share or multi-stream technology. We will continue to develop around those recurring themes with the primary goal of having a fulsome beta version available later this year. If you have a chance, please visit us at multishare.us to join our trial program. In Q2, we expanded our engineering and product design team by about 30%, adding both on and near-shore resources wholly focused on cloud and development for the iOS and Android market as we look to innovate some of our legacy capabilities into more frictionless experiences through apps on your laptops or handheld devices. As part of the journey from on-premises solutions to cloud, we added Amanda Messbauer to our leadership team as VP of Sales at the beginning of August. With over 20 years' experience in selling B2B cloud services for the likes of Evernote and Accruant, Amanda, along with three new salespeople added in the last 90 days, are forming a great team whose mission will be to consultatively engage current and new customers on the future of the hybrid workforce. Lastly, we added Debbie Meredith and Matt Bloomberg to our board of directors. Their respective accomplishments in technology companies are too long to mention on this call, but I can absolutely say their collective experience, pragmatism, and deep technical acumen will add significant value for our shareholders in the future. Toward the end of June, we completed an offering raising $11.5 million of net proceeds, which will be used primarily for product development, marketing, and sales initiatives. At June 30th, the company had $13 million in cash in the bank, a very simplified capital structure, and $2.4 million in loan obligations to the Small Business Administration, which were subsequently forgiven in late July in holds. The company has no debt obligations outstanding as of today. On the revenue front, we've often discussed one of the key catalysts in our evolution being some material form of, or at least how the media might describe it as, a quote unquote return to the office. The truth is no one truly knows when or what that looks like, because frankly, the concept of a new normal won't resemble anything close to the old normal. Its crystal clear productivity metrics are being reframed, and those who embrace digitization of workflows and workspaces in particular will lead their respective markets in the future. To better understand a modern perspective on work today and in the future, I'd encourage everyone to read a recent article from McKinsey titled, It's Time for Leaders to Get Real About Hybrid. Aside from McKinsey being a longtime client, we share a very common view of how and where tomorrow's workforce will connect and produce products and services in the future. One quote in the article that particularly and perfectly aligns with Oblong's vision of meetings goes as follows. The norms surrounding meetings are ripe for refreshing. Who needs to attend which meetings, for how long, and in what format? How can meetings be redesigned in a way that maximizes efficiency, accelerates effective decision-making, and builds connectivity and social cohesion. The answers aren't clear yet, but companies will figure them out by trial and error, by testing and learning. And with that backdrop, that's exactly what Oblong has been doing, testing and learning. As previously stated, we are already testing versions of our multi-share service, but we are also getting traction with various proof of concepts from companies in manufacturing, entertainment, aerospace, consulting, and financial services industries, all of whom have recently inquired about trialing or testing our in-room products, as they too look to transform their workspaces and increase employee engagement in the future. We believe these investments in our customers today and in the future will pay substantial dividends as our products become more easily consumable from the cloud. David, I'll pass it over to you.
spk02: Thanks, Pete. Good afternoon, everyone. Our total revenue for the second quarter of 2021 was $2 million, compared to $2.8 million for the second quarter of 2020. This decline was mainly due to decreases between these periods in our non-core revenue lines, including professional services, managed services, and licensing of technology to a former customer. However, revenue associated with our mezzanine products slightly increased by 2%, to nearly $1 million for the second quarter of 2021 versus $0.9 million for the same quarter last year. Our gross profit margin for the second quarter of 2021 was 39%, which was approximately in line with 40% in the second quarter of last year. Net loss for the second quarter of 2021 was $2.2 million, compared to a net loss of $3.4 million for the second quarter of 2020. our adjusted EBITDA loss was $1.6 million in the second quarter of 2021, compared to an adjusted EBITDA loss of $2 million for the second quarter of last year. These improvements in net loss and adjusted EBITDA loss were primarily due to reduced operating expenses, partially offset by lower gross profit between these periods. Turning to our balance sheet, we are pleased to have recently improved our liquidity position and eliminate all debt. At the end of the second quarter of 2021, we had total cash of $13.1 million compared to $5.2 million at the end of 2020. As Pete mentioned, we closed in equity financing at the end of the second quarter, raising $11.5 million of net proceeds. Our only outstanding debt at the end of the second quarter was a loan of $2.4 million from the Paycheck Protection Program, which was subsequently forgiven in its entirety during July. In accordance with GAAP, we expect to record this loan forgiveness below the operating line as other income in our third quarter results. And as of the end of July, the company has no debt remaining.
spk04: With that, we can now open the call for questions.
spk00: Thank you. If you'd like to ask a question, please press star followed by the number one on your telephone keypad. If you're calling from a speakerphone, please make sure your mute function is off to ensure your signal can reach our equipment. Again, star one to ask a question. And first we'll go to Jim McElroy from Dawson James. Your line is open.
spk04: Yeah, thanks. Good afternoon. You talked about headcount changes. So, can we just start with what headcount is now versus what it was at the end of Q1? Sure.
spk03: Yeah. We now have approximately 57 full-time employees. And we, as I mentioned in the call earlier, we now have seven resources on an offshore capacity, Jim.
spk04: And so how does that compare to the end of Q1? What I'm really trying to get at is what happens to operating expenses over the next couple of quarters.
spk03: Sure. I think the actual number at Q1, I believe we were at 48 folks at the end of Q1 and no engineers in an offshore capacity at the end of Q1.
spk04: Okay. And you did mention hiring new sales and R and D as well. Is that correct? So the correct increase in account is, is targeted towards those two areas. Is that right? That's correct. Yeah. Okay. And Pete, I think you said you hoped to have, so we're going to use a fulsome beta version of the multi-share later this year. That's right. Can you talk a little bit about the beta program, if you've signed any beta participants up yet, if that's still to come, how long it might last, and then next steps after whatever trial period takes place? Sure.
spk03: Yeah. Well, just to qualify that, we're definitely still in what I would call proof of concept or almost pre-MVP kind of state at this point from a product roadmap. So the beta product will obviously have a lot more features and be a more fulsome beta. So right now we have 15 different companies, most of whom are past customers or prospective current customers that are participating in the testing of our proof of concept at this stage. And it's approximately 100 or so users that are sort of in and out of the testing program on a regular basis. And we expect to sort of evolve that into an MVP probably early in the fourth quarter, I should say, and then evolve into a beta by the end of the year.
spk04: That's your trajectory on the product roadmap right now. And so would it be fair to expect the beta last one to two quarters, and then maybe there's a full-blown introduction in the second quarter next year?
spk03: Yeah, I think it's probably – Yeah, it's probably one quarter. I mean, we're doing most of our work in heavy lifting on the design side, pre kind of MVP at this stage. So a lot of the questions we believe we will have answered from a customer feedback perspective will come in the form of the beta. So will we add things to the beta? Sure. But beta will be much closer to a GA version of the product. So I expect the beta to last no more than
spk04: you know, 90 to 120 days. Okay. And then just back to the expenses. So is the expense level, you know, it's never fixed, but is the expense level stable, at least at this level of activity, or is there more to come in order to drive the next, you know, next stage of growth?
spk03: Yeah, no, I think it's fair to assume we will continue to add talented resources and capabilities in the engineering function over the next five months. We will also, as the beta, as we evolve into a beta, we'll likely add some more marketing expense in that area as well. So I think those two areas will see increased expense over the next five or six months. I don't think it'll be, you know, factor of two X or anything, Jim, I think it'll be, you know, gradual and systematic from, from the current levels. But, you know, we're not talking about adding 40 or 50 people here, right? We're talking about adding, you know, another eight to 10 folks in engineering and probably, you know, resources on the marketing side. They may be internal, they may be external or a combination of both. But, but I think the, the expense level from here will go up, but, but as any, as any software company or, or developing software company, does, you'll look to get as much feedback as you can and then press the gas pedal a little harder on the production side from the engineering perspective. So that's sort of the forward looking sort of August through December when we think about expense levels. Okay.
spk04: And then I think this is my last one. So, you know, we've seen some companies push their back to work schedule from September to October. Who knows what happens after that? My question is the announcements that I've seen seem to relate mostly to the United States. My question is, is there a difference in how companies are approaching their back-to-work in Europe versus the U.S. or Asia versus the U.S.? Or is it all kind of, at least from your perspective, it's all kind of tied up in kind of the same thinking?
spk03: I think big picture, it's pretty much tied up in this, whatever the same, whatever the same thing is from everybody. Everybody's got a different perspective, right? You know, I think it'd be nice if, if employees were, you know, collectively jumping for joy at the prospect of a full return to the office, but, but that's, that's delusional, right? At this stage. Most of those are fantasies built on nostalgia about the past, but there is no such thing anymore, right? There's a, You've got to build a foundation and build a company that's sort of future-proof and ready to consume content and information in a completely different way than we've done it in the past. The data I get sort of monthly from the big tenant reps out there, the big commercial real estate firms that are managing properties all over the world suggest that most of their companies remain irrespective of whether it's in Europe or Asia pack or North America or South America are in the same boat, which is it's less really about a back to office. And it's really about how are we redesigning spaces for the future to accommodate what is inevitable. And my sense is everybody's on a bit of a different timeline and every country has a different worry. Some countries are, going through lockdowns again at this point. So, you know, my instincts say in big picture that much of what we see today will very likely continue definitely through Labor Day and conceivably through the end of the year for the great majority. And that whatever the workplace of the future looks like will have to be gradually designed over the next 12 months to invite people to come back right, to engage them effectively.
spk04: Yeah, okay. Yeah, it's obviously a challenging environment. So good luck with everything, and we'll talk again. Yeah.
spk03: Yeah, thanks, Jim. I appreciate it. Appreciate the questions. I'll just close, if I could, by saying, you know, I'd really like to thank all of our fantastic team members, fellow employees, our partners, and our customers. For many, many of us, the last 18 months have been an incredibly difficult experience, and it's forced people and companies to reevaluate their purpose and their business models. One of the great values we have at Oblong is grit. We are tenacious. We simply don't give up on anything. And in spite of what normally you'd say are huge macro headwinds for companies selling into commercial real estate spaces, We've continued to evolve. We have a fierce resolve in everything we do. This is a temporary setback from my perspective, what's happening in the world, and we always find ways to overcome these things. And while the near term may continue to offer challenges, our focus is very clear and our mission unwavering. The next generation of work is forming, and Oblong is helping to shape and redefine the workspace of the future. So with that, I'd like to thank everybody for joining the call today. And thank you, Christine. We appreciate your time.
spk00: Thank you. That does conclude our call for today. Thank you for your participation. You may now disconnect.
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