OBLONG, INC. Overview
We are a provider of patented multi-stream collaboration products and managed services for video collaboration and network solutions.
Mezzanine™ Product Offerings
Our flagship product is called Mezzanine™, a family of turn-key products that enable dynamic and immersive visual collaboration across multi-users, multi-screens, multi-devices, and multi-locations. Mezzanine™ allows multiple people to share, control and arrange content simultaneously, from any location, enabling all participants to see the same content in its entirety at the same time in identical formats, resulting in dramatic enhancements to both in-room and virtual videoconference presentations. Applications include video telepresence, laptop and application sharing, whiteboard sharing and slides. Spatial input allows content to be spread across screens, spanning different walls, scalable to an arbitrary number of displays and interaction with our proprietary wand device. Mezzanine™ substantially enhances day-to-day virtual meetings with technology that accelerates decision making, improves communication, and increases productivity. Mezzanine™ scales up to support the most immersive and commanding innovation centers; across to link labs, conference spaces, and situation rooms; and down for the smallest work groups. Mezzanine's digital collaboration platform can be sold as delivered systems in various configurations for small teams to total immersion experiences. The family includes the 200 Series (two display screen), 300 Series (three screen), and 600 Series (six screen). We also sell maintenance and support contracts related to Mezzanine™. Historically, customers have used Mezzanine™ products in traditional office and operating center environments such as conference rooms or other presentation spaces. As discussed below, sales of our Mezzanine product have been adversely affected by commercial response to the COVID-19 pandemic. Like many technology companies in recent months, we will continue to monitor and manage our costs relative to demand with the goal of growing the Company's revenue in the future. To the extent we believe new investments in product development, marketing, or sales are warranted as a result of changes in market demand, we believe additional capital will be required to fund those efforts and our ongoing operations.
Managed Services for Video Collaboration
We provide a range of managed services for video collaboration, from automated to orchestrated, to simplify the user experience in an effort to drive adoption of video collaboration throughout our customers' enterprise. We deliver our services through a hybrid service platform or as a service layer on top of our customers' video infrastructure. We provide our customers with i) managed videoconferencing, where we set up and manage customer videoconferences and ii) remote service management, where we provide 24/7 support and management of customer video environments.
Managed Services for Network
We provide our customers with network solutions that ensure reliable, high-quality and secure traffic of video, data and internet. Network services are offered to our customers on a subscription basis. Our network services business carries variable costs associated with the purchasing and reselling of this connectivity.
Oblong's Results of Operations
Three Months Ended
Segment Reporting
The Company currently operates in two segments: (1) "Collaboration Products," which represents theOblong Industries business surrounding our Mezzanine™ product offerings and (2) "Managed Services," which represents the Oblong (formerly Glowpoint) business surrounding managed services for video collaboration and network solutions. Certain information concerning the Company's segments for the three months endedSeptember 30, 2022 is presented in the following table (in thousands): -18- -------------------------------------------------------------------------------- Three Months Ended September 30, 2022 Collaboration Managed Services Products Corporate Total Revenue $ 797 $ 388 $ -$ 1,185 Cost of revenues 552 289 - 841 Gross profit $ 245 $ 99 $ -$ 344 Gross profit % 31 % 26 % 29 % Allocated operating expenses $ -$ 6,275 $ -$ 6,275 Unallocated operating expenses - - 1,229 1,229 Total operating expenses $ - $
6,275
Income (loss) from operations $ 245$ (6,176) $ (1,229) $ (7,160) Interest and other expense (income), net 1 (6) - (5) Net income (loss) before tax 246 (6,170) (1,229) (7,155) Income tax benefit - (3) - (3) Net income (loss) $ 246$ (6,167) $ (1,229) $ (7,152) Unallocated operating expenses in Corporate include costs during the 2022 Third Quarter that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses. Revenue. Total revenue decreased 34% in the 2022 Third Quarter compared to the 2021 Third Quarter. The following table summarizes the changes in components of our revenue (in thousands), and the significant changes in revenue are discussed in more detail below. Three Months Ended September 30, 2022 % of Revenue 2021 % of Revenue Revenue: Managed Services Video collaboration services $ 69 6 %$ 179 10 % Network services 716 60 % 813 45 % Professional and other services 12 1 % 14 1 % Total Managed Services revenue $ 797 67 %$ 1,006 56 % Revenue: Collaboration Products Visual collaboration product offerings $ 385 33 %$ 771 43 % Licensing 3 - % 22 1 % Total Collaboration Products revenue 388 33 % 793 44 % Total revenue$ 1,185 100 %$ 1,799 100 % Managed Services •The decrease in revenue for video collaboration services is mainly attributable to lower revenue from existing customers (either from reductions in price or level of services) and loss of customers to competition. •The decrease in revenue for network services is mainly attributable to net attrition of customers and lower demand for our services given the competitive environment and pressure on pricing that exists in the network services business. -19- --------------------------------------------------------------------------------
•We expect revenue declines in our Managed Services segment will continue in the future.
Collaboration Products •The decrease in revenue for our product offerings is primarily attributable to the effects of the COVID-19 pandemic on our existing and target customers as they continue to evaluate behavioral changes in how and when employees choose to work from traditional office environments. The Company's results reflect the challenges of long and unpredictable sales cycles, delays in customer retrofit budgets for commercial real estate spaces, project delays, and prospective orders in our distribution channels as a direct result of partner and customer implementation schedules shifting due to the COVID-19 pandemic. The COVID-19 pandemic in particular has, and may continue to have, a significant economic and business impact on our Company. During 2020, 2021 and the nine months endedSeptember 30, 2022 , we saw continued weakness in revenue as our partners and customers across all sectors delayed potential orders in reaction to the ongoing impacts of the pandemic that caused our customers to suspend or postpone technology changes/upgrades due to budget and occupancy uncertainties. We continue to monitor the impact of the pandemic on our customers, suppliers and logistics providers, and evaluate governmental actions being taken to curtail and respond to the spread of the virus. The significance and duration of the ongoing impact on us is still uncertain. Material adverse effects of the COVID-19 pandemic on market drivers, our partners and customers, suppliers or logistics providers may be expected to continue to significantly impact our operating results. We will continue to actively follow, assess and analyze the ongoing impact of the pandemic and adjust our organizational structure, strategies, plans and processes to respond. Because the situation continues to evolve, we cannot reasonably estimate the ultimate impact to our business, results of operations, cash flows and financial position that the pandemic may have. Continuation of the pandemic and government actions in response thereto could cause further disruptions to our operations and the operations of our customers, suppliers and logistics partners and may be expected to continue to significantly adversely affect our near-term and long-term revenues, earnings, liquidity and cash flows. Cost of Revenue (exclusive of depreciation and amortization and casualty loss). Cost of revenue, exclusive of depreciation and amortization and casualty loss, includes all internal and external costs related to the delivery of revenue. Cost of revenue also includes taxes which have been billed to customers. Cost of revenue by segment is presented in the following table (in thousands): Three Months Ended September 30, 2022 2021 Cost of Revenue Managed Services $ 552$ 721 Collaboration Products 289 507 Total cost of revenue $ 841$ 1,228 The decrease in cost of revenue is mainly attributable to lower costs associated with the decrease in revenue during the same period. The Company's gross profit as a percentage of revenue was 29% in the 2022 Third Quarter compared to 32% in the 2021 Third Quarter. -20-
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Operating expenses are presented in the following table (in thousands):
Three Months Ended September 30,
2022 2021 $ Change % Change
Operating expenses:
Research and development $ 232 $ 693 $ (461) (67) %
Sales and marketing 282 438 (156) (36) %
General and administrative 1,229 1,628 (399) (25) %
Impairment charges 5,169 254 4,915 1935 %
Depreciation and amortization 592 669 (77) (12) %
Total operating expenses $ 7,504 $ 3,682 $ 3,822 104 %
Research and Development. Research and development expenses include internal and
external costs related to developing new product offerings as well as features
and enhancements to our existing product offerings. The decrease in research and
development expenses for the 2022 Third Quarter compared to the 2021 Third
Quarter is primarily attributable to lower personnel costs due to reduced
headcount between these periods.
Sales and Marketing Expenses. The decrease in sales and marketing expenses for
2022 Third Quarter compared to the 2021 Third Quarter is mainly attributable to
lower personnel costs due to reduced headcount between these periods.
General and Administrative Expenses. General and administrative expenses include
direct corporate expenses and costs of personnel in the various corporate
support categories, including executive, finance and accounting, legal, human
resources and information technology. The decrease in general and administrative
expenses for the 2022 Third Quarter compared to the 2021 Third Quarter is mainly
attributable to a decrease in stock-based compensation expense.
Impairment Charges. The impairment charges of $5,169,000 in the 2022 Third
Quarter were attributable to impairment of long-lived assets. In addition to the
impairment charges of $5,132,000 related to intangible assets (see Note 4 -
Intangible Assets) we also recorded impairment charges of $37,000 related to
property and equipment in our Collaboration Products segment. The impairment in
the 2021 Third Quarter was attributable to impairment charges on property and
equipment and intangible assets no longer in service. Future declines of our
revenue, cash flows and/or market capitalization may give rise to a triggering
event that may require the Company to record impairment charges in the future
related to our intangible assets and other long-lived assets.
Depreciation and Amortization. The decrease in depreciation and amortization
expenses for the 2022 Third Quarter compared to the 2021 Third Quarter is mainly
attributable to the disposition and impairment of certain assets during the
second half of 2021 and the first nine months of 2022, as well as a decrease in
depreciation as certain assets became fully depreciated.
Loss from Operations. The decrease in the Company's loss from operations for the
2022 Third Quarter compared to the 2021 Third Quarter is mainly attributable to
lower operating expenses as addressed above.
Nine Months Ended
Segment Reporting
Certain information concerning the Company's two segments for the nine months
ended
-21-
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Nine Months Ended September 30, 2022
Collaboration
Managed Services Products Corporate Total
Revenue $ 2,573 $ 1,477 $ - $ 4,050
Cost of revenues 1,722 1,078 - 2,800
Gross profit $ 851 $ 399 $ - $ 1,250
Gross profit % 33 % 27 % 31 %
Allocated operating expenses $ 57 $ 17,804 $ - $ 17,861
Unallocated operating expenses - - 4,104 4,104
Total operating expenses $ 57 $
17,804
Income (loss) from operations $ 794$ (17,405) $ (4,104) $ (20,715) Interest and other expense (income), net 7 (6) - 1 Net income (loss) before tax 787 (17,399) (4,104) (20,716) Income tax expense 8 - - 8 Net income (loss) $ 779$ (17,399) $ (4,104) $ (20,724) Unallocated operating expenses in Corporate include costs during the nine months endedSeptember 30, 2022 that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.
Revenue. Total revenue decreased 30% in the nine months ended
Nine Months Ended September 30,
2022 % of Revenue 2021 % of Revenue
Revenue: Managed Services
Video collaboration services $ 264 7 % $ 700 21 %
Network services 2,260 56 % 2,524 77 %
Professional and other services 49 1 % 55 2 %
Total Managed Services revenue $ 2,573 64 % $ 3,279 57 %
Revenue: Collaboration Products
Visual collaboration product
offerings $ 1,467 36 % $ 2,406 42 %
Licensing 10 - % 81 1 %
Total Collaboration Products revenue 1,477 36 % 2,487 43 %
Total revenue $ 4,050 100 % $ 5,766 100 %
Managed Services
•The decrease in revenue for video collaboration services is mainly attributable to lower revenue from existing customers (either from reductions in price or level of services) and loss of customers to competition. •The decrease in revenue for network services is mainly attributable to net attrition of customers and lower demand for our services given the competitive environment and pressure on pricing that exists in the network services business.
•We expect revenue declines in our Managed Services segment will continue in the future.
-22-
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Collaboration Products
•The decrease in revenue for our product offerings is primarily attributable to
the effects of the COVID-19 pandemic on our existing and target customers as
they continue to evaluate behavioral changes in how and when employees choose to
work from traditional office environments, as discussed above in - Oblong's
Results of Operations - Three Months Ended September 30, 2022 (the "2022 Third
Quarter") compared to the Three Months Ended September 30, 2021 (the "2021 Third
Quarter").
Cost of Revenue (exclusive of depreciation and amortization and casualty loss).
Cost of revenue, exclusive of depreciation and amortization and casualty loss,
includes all internal and external costs related to the delivery of revenue.
Cost of revenue also includes taxes which have been billed to customers. Cost of
revenue by segment is presented in the following table (in thousands):
Nine Months Ended September 30,
2022 2021
Cost of Revenue
Managed Services $ 1,722 $ 2,293
Collaboration Products 1,078 1,474
Total cost of revenue $ 2,800 $ 3,767
The decrease in cost of revenue is mainly attributable to lower costs associated
with the decrease in revenue during the same period. The Company's gross profit
as a percentage of revenue was 31% for the nine months ended September 30, 2022 ,
and 35% for the nine months ended September 30, 2021 .
Operating expenses are presented in the following table (in thousands):
Nine months ended September 30,
2022 2021 $ Change % Change
Operating expenses:
Research and development $ 1,634 $ 1,984 $ (350) (18) %
Sales and marketing 1,161 1,537 (376) (24) %
General and administrative 4,104 5,078 (974) (19) %
Impairment charges 12,715 302 12,413 4110 %
Casualty loss 533 - 533 100 %
Depreciation and amortization 1,818 2,098 (280) (13) %
Total operating expenses $ 21,965 $ 10,999 $ 10,966 100 %
Research and Development. Research and development expenses include internal and
external costs related to developing new product offerings as well as features
and enhancements to our existing product offerings. The decrease in research and
development expenses for the nine months ended September 30, 2022 compared to
the nine months ended September 30, 2021 is primarily attributable to lower
personnel costs due to reduced headcount, partially offset by a $372,000
increase in consulting and outsourced labor costs between these periods.
Sales and Marketing Expenses. The decrease in sales and marketing expenses for
the nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021 is mainly attributable to lower office costs due to fewer
real estate leases.
General and Administrative Expenses. General and administrative expenses include
direct corporate expenses and costs of personnel in the various corporate
support categories, including executive, finance and accounting, legal, human
resources and information technology. The decrease in general and administrative
expenses for the nine months ended September 30, 2022 compared to the nine
months ended September 30, 2021 is mainly attributable to decreases of $768,000
in stock-based expense
-23-
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and $167,000 in bad debt expense, and lower consulting and professional fees,
partially offset by an increase in personnel expenses, primarily attributable to
receiving an Employee Retention Credit ("ERC") during the nine months ended
September 30, 2021 and not during the nine months ended September 30, 2022 .
Impairment Charges. The impairment charges in the nine months ended September
30, 2022 are attributable to impairment charges of $7,367,000 related to
goodwill, $5,132,000 related to intangible assets, $37,000 related to property
and equipment, and $179,000 related to right-of-use assets associated with two
of our Los Angeles, CA leases. The impairment charges in the nine months ended
September 30, 2021 were attributable to impairment charges on property and
equipment and intangible assets no longer in service. Future declines of our
revenue, cash flows and/or market capitalization may give rise to a triggering
event that may require the Company to record impairment charges in the future
related to our intangible assets and other long-lived assets.
Casualty Loss. During the second quarter of 2022, the Company discovered that
$533,000 of inventory was stolen from the Company's warehouse. This theft has
been recorded as a casualty loss of $533,000 during the nine months ended
September 30, 2022 on the Company's condensed consolidated Statements of
Operations. The theft is being investigated further by the Los Angeles, CA
Sheriff's Department and a claim has been filed with the Company's insurance
company. We are seeking to recover the majority of the loss through our
insurance policies, and we will offset the casualty loss with the recognition of
a gain of any proceeds should we subsequently receive them from our insurance
company. No assurances can be provided that we will be successful in recovering
any or all of the casualty loss.
Depreciation and Amortization. The decrease in depreciation and amortization
expenses for the nine months ended September 30, 2022 compared to the nine
months ended September 30, 2021 is mainly attributable to the disposition and
impairment of certain assets during the second half of 2021 and the first nine
months of 2022 as well as a decrease in depreciation as certain assets became
fully depreciated.
Loss from Operations. The increase in the Company's loss from operations for the
nine months ended September 30, 2022 compared to the nine months ended September
30, 2021 is mainly attributable to higher operating expenses and lower revenue
and gross profit as addressed above.
Off-Balance Sheet Arrangements
As of
Inflation
Management does not believe inflation had a significant effect on the condensed consolidated financial statements for the periods presented.
Critical Accounting Policies
There have been no changes to our critical accounting policies during the nine months endedSeptember 30, 2022 . Critical accounting policies and the significant estimates made in accordance with such policies are regularly discussed with our Audit Committee. Those policies are discussed under "Critical Accounting Policies" in "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as in our condensed consolidated financial statements and the footnotes thereto, each included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSEC onMarch 29, 2022 (the "2021 Annual Report").
Liquidity and Capital Resources
As of
Our capital requirements in the future will continue to depend on numerous
factors, including the timing and amount of revenue for the Company, customer
renewal rates and the timing of collection of outstanding accounts receivable,
in each case particularly as it relates to the Company's major customers, the
expense to deliver services, expense for sales and marketing, expense for
research and development, and capital expenditures. We expect to continue to
invest in product development and sales and marketing expenses with the goal of
growing the Company's revenue in the future. The Company believes that, based on
its current projection of revenue, expenses, capital expenditures, and cash
flows, it will not have sufficient resources to fund
-24---------------------------------------------------------------------------------
its operations for the next twelve months following the filing of this Report. We believe additional capital will be required to fund operations and provide growth capital including investments in technology, product development and sales and marketing. To access capital to fund operations or provide growth capital, we will need to raise capital in one or more debt and/or equity offerings. There can be no assurance that we will be successful in raising necessary capital or that any such offering will be on terms acceptable to the Company. If we are unable to raise additional capital that may be needed on terms acceptable to us, it could have a material adverse effect on the Company. The factors discussed above raise substantial doubt as to our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from these uncertainties.
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