Peter Holst – President & Chief Executive Officer David Clark – Chief Financial Officer.

Jack Gilbert – Private Investor Jim Wookey – WM Jason Adelman - Cipher Capital.

Good afternoon everyone. Welcome to Glowpoint's Third Quarter 2014 Results Conference Call. Before we begin, I want to remind listeners that this call is being webcast live over the Internet, and webcast replay will also be available on the Company's website at www.glowpoint.com following the call.

Now it is my pleasure to turn the floor over to your host President and CEO of Glowpoint’s Mr. Peter Holst. Sir, the floor is yours. .

Thank you, Catherine. Good afternoon everyone. David Clark, our CFO, is also on the call with me today, and we’ll review our Third Quarter Financial Results. Discuss significant business developments and market conditions and provide an update on the execution and strategy. This webcast is being archived in the Investor Relations section of our website.

Please note that during the course of this call, we’ll be making certain forward-looking statements, including those regarding revenue recognition matters, results of operations, investments, initiatives and growth strategies, these statements are subject to many assumptions risk and uncertainties and changes in circumstances.

Any assumptions we share about the future performance represent a point in time estimates. Actual results may vary materially from those expressed or implied by such statements.

We express, we disclaim any obligation to revise or update any assumptions, projections or other forward-looking statements to reflect events or circumstances that may arise after the date of this call.

For more information of risk factors that may cause actual results to differ from expectations, please see our filings with the SEC, included in our latest Form 10-K and 10-Q. David will begin by commenting on our third quarter financial results.

I’ll then discuss significant business developments, market conditions, execution of strategy and our ongoing plans for managing working capital. With that I’ll turn the call over to David..

Thanks Pete. Revenue for the third quarter of 2014 was $8 million, and decreased 4% from $8.3 million for the same quarter last year. Roughly half of this decrease was due to a decline in professional and other services, which we view as non-core and non-recurring. The remaining decrease was due to a modest decline in some of our more matured services.

Our gross margin improved to 45% for the third quarter as compared to 40% in the third quarter of last year. The increase in gross margin primarily reflects the impact of greater cost efficiencies for certain video collaboration services.

Operating expenses were down $1 million or 12% to $7.4 million in the third quarter, as compared to $8.4 million for the same quarter in 2013. The decrease was mainly driven by lower cost of revenue and reductions in G&A expenses.

We generated income from operations of $556,000 for the third quarter, which represents the company’s highest quarterly operating income since 2009. We also reported net income of $198,000 in the third quarter of 2014 compared with a net loss of $551,000 for the third quarter of last year.

Adjusted EBITDA, a non-GAAP measure increased 11% to $1.4 million in the third quarter of 2014 compared with $1.2 million for the same period last year. Adjusted EBITDA, as a percentage of revenue improved to 17% for the third quarter of 2014 as compared to 15% for the third quarter of last year.

Now I’ll review key data relating to our cash flow and balance sheet. In the first nine months of 2014, we generated positive cash flow from operations of $1.6 million. During the first nine month of the year, we invested $1.6 million for capital expenditures, related to our service delivery platform and infrastructure that Pete will discuss further.

Our cash position as of September 30, 2014 was $2.2 million compared to our cash position of $2.3 million at the end of 2013. And we ended the quarter with positive working capital of $2 million. Now I’ll turn the call over to Pete..

Thanks Dave. Again, good afternoon everyone, and thanks for joining us on our call and your interest in Glowpoint. On the call today, I would like to share with you my view of the business, the actions we’ve taken as a result and some of the encouraging early performance results we are seeing.

When I joined the company as CEO last year, I found the business facing some significant challenges evidenced by the historical financial performance, simple really complex product mix. I’m confident we are taking the right steps to address these challenges, convert them to opportunities and position the business for long-term success.

As I had outlined also in prior calls, macro trends across the industry would not be reversed over night. But it was clear to me early on that we needed to act quickly and decisively on key financial, personnel and technology matters.

We’ve done a lot of work internally to reduce non-core expenses, and create a sustainable level of cash flow to fund key development projects. Our next goal is to leverage what we’ve built; diversify our product mix further and build the business around our third generation service platform. First, let me layout my approach to managing the company.

I was invited to run Glowpoint and manage the company carefully through a significant technology shift in the industry. I’ve established clear priorities and goals for the company that will drive value.

We are going to manage the business thoughtfully around creating shareholder value by building applications for growth markets, while managing some of our services through their maturity cycle.

As we mentioned last quarter, we are proactively engaging in discussions with customers, where we would gain new opportunities in exchange for lower rates on some of our classic services, but only where it makes sense to both parties.

While it has resulted in uneven revenue results during this investment cycle, we don’t view this as a negative overall for the business, but rather a natural evolution and requirement to put together a balanced offering that works for our customers, with the goal of driving future revenue growth.

In order to drive shareholder value we will grow the business by focusing intensely on better understanding our customer base, expanding our product mix and leveraging our investments.

This year we focused a vast majority of our cash flow on creating global support systems, infrastructure and services, while aligning our sales force in response to demand for pre-sales solution design and account management.

We’ve already started marketing our platform with select customers to learn and optimize the systems as we build out in other major markets in 2015. I’m pleased to say that having only targeted a very small group of prospects we just passed the $1 million market revenue on our new platform this year.

Early results, even in a small study group are very, very encouraging. To that end, our priorities for next year will be clearly on distribution and system enhancements for the next-gen system, while appropriately allocating resources to our mature products lines.

From a financial perspective, we’ve done some great work to improve margins and drive cash flow in the business, as evidenced by our performance this quarter; highest gross margins, adjusted EBITDA, and operating income in over five years.

While we’ve completed many cost reductions, we are also selectively investing in areas of the business we believe will help us drive growth.

Beyond infrastructure and software applications, we’ve also heavily invested in customer service, with the intent to bring the highest level of customer care to unwavering dedication and leadership to our high value customers.

We believe our commitment to system design service mix and greet people will ultimately be a winning value proposition for buyers. Turning now to opportunities for product diversification through in-organic means, we continue to see generally full values in the areas we’re looking for strategic investments.

While we’ve been very active in reviewing deals, we’ll continue to stay disciplined, and maintain our parameters on the fundamentals, such as fit, structure, product expansion, and value in order to get a deal done.

We are active at the moment, but we’ll also continue to aggressively build infrastructure and systems organically for our platform, where we see the potential for attractive returns. So in summary this was a strong quarter, emphasizing our continued expense controls, enabling us to invest in key infrastructure.

Our operations team is focused on becoming the best customer service engine in the industry, and our engineering group has built the foundation of a service platform that we believe can now yield strong and sustainable value into next year and beyond. Needless to say, this is just the beginning.

You are going to see new product offerings that provide customers what they want and what they deserve; clarity, simplicity, and value. After 18 months of diligent work, we’re excited about the opportunity in front of us and I look forward to speaking to you all again as we see the results develop. Catherine, I’ll open the call to questions. .

Thank you. [Operator Instructions] And we have a question from Jack Gilbert, he’s a private investor. Jack, please state your question. .

Peter, this Jack Gilbert. .

Hey Jack. .

Could you please talk about the fourth quarter and next year, all these new scheduled launches when and – when do you think we are going to have revenue growth, and what percentage revenue growth this next quarter and next year?.

We are not giving any guidance right now Jack on fourth quarter. We just came out of our annual board meeting, and we expect to assess sort of the guidance process moving forward in the next year. So, we’re not planning on giving guidance at this point. .

For this next quarter and next year?.

Correct. We’ve already given guidance for the rest of the year in prior calls. And in terms of 2015, we don’t plan on giving guidance yet on that, as we haven’t completed our annual budget cycle yet. .

Okay. .

And our next question comes from [Jim Wookey from WM]. Jim, please state your question..

Hey, Pete. Recently you attended Craig-Hallum conference, and a couple of statements that you made at the conference. First you said, it feels like we have a tremendous opportunity to kind of have explosive growth going into next year.

And my question is, can you quantify what explosive growth is?.

Well. I think that the market right now, Jim, suggest that there are certain opportunities in the video services segment right now that would define growth in the mid-to-high double digits range for specific service types, I would categorize that as a very high growth market. And those are certainly the markets we’re chasing right now.

Reservation less, automated services where there are high gross margins and what seemingly every analyst in the market believes right now is a very high growth market. .

Okay.

So you said going into next year, does that mean that’s starting now? That mean, that’s starting in the first quarter? Going into next year, probably is starting now?.

Yeah, well we’ll have talked about the release of our platform. I think it’s outlined in the press release that we’re in beta on that particular product, Jim.

So we expect to go generally available with that product starting January once we’ve gone through all the testing phase and cycles and gone through all the process that beta dictates, and that’s the market that we will be generally available and attacking starting January 1..

Okay what did we’d watch so far, the first phase of the offering?.

Well we go through different phase, right? We go through different launch phases, right? So yes, we have the first phase of the – a portions of our platform are already in process as I discussed, right? We put the platform out to market in a very, very narrow scope, and we have already generated as I said over $1 million, in fairly short order on the platform at this stage.

.

You’d find [indiscernible] put on release saying we launched the new platform – this –we generate a little bit of interest in your company?.

I think as I said before, Jim. We’ll put out press release when we think they are material to stockholders. .

That’s not an important release that were changing the direction of the company or rolling out new technology from the market point?.

I think putting something out into a formal state, meaning generally available, I think is an important milestone. Putting something out into an alpha state or a testing state, I don’t think is or….

But the launch, the phase one launch, isn’t alpha data, is it? It’s a launch, isn’t it?.

Well, Jim, I’m not going to debate….

In January, that’s a second phase. I understand if we don’t….

We appreciate the question, Jim. .

Our next question comes from Jason Adelman from Cipher Capital. Jason, please state your question. .

Hi Pete, hi Dave. So on the adjusted – it looks like the adjusted EBITDA margins are trending up.

The new product release you said you’ve kind of generated roughly $1 million, is that something that we think will increase your adjusted EBIDTA margins to higher levels over time?.

Correct. Yeah, we think we believe that are very – unlike our others services that we’ve been selling historically in the sort of low to mid-40s range on gross margins. We believe the new services that we’re putting into market are all services that are, it’s somewhere been 50% and 70% gross margins, that’s the market we’re attacking moving forward..

And then obviously the correlating adjusted EBITDA margin should be higher as well?.

Correct. Yes..

Impacted of course by the automation..

Well, that’s right. There is less overhead and operating expense associated with those service as well. So it does imply a much higher EBITDA number on a dollar-for-dollar basis..

Great, and then, is there a scalability where you start to see kind of exponential margin enhancement, when you reach a certain level of usage in revenue?.

Sure. No I think so, as I just mentioned to Jim, we’re right in the middle of the budget cycle right now. So we’re looking at all those figures but yes, right, there will be at some point, and if not, a terribly large number before you achieve scale. But you’ll start to see some efficiencies gained as a result of hitting critical mass without a doubt. .

And based on some of your preliminary models, what do you – generally speaking, what do you think that cross over period is where you think that scale starts to really kick into the bottom-line? $15 million of additional revenue, is it $10 million of additional revenue?.

Yeah, definitely not $50 million. We don’t have an exact number right now. But it’s certainly probably much closer to $10 million, it’s $50 million..

Okay. All right, good job on the profit side. Good work guys..

Thanks Jason..

And Jim has joined the queue again, Jim Wookey..

Pete, going back to the Craig-Hallum conference that you had, I noticed that you had said, I found it really of interest. You said we believe the nature of mobile video is absolutely going to explode the video market over the next five years.

You talked about competitive information out there from various peers and space that would suggest that the compound growth rate, which you talked about in the high-high double-digits. You talked about, our addressable market is very substantial, you talked about the business, so a lot of very good things. However, you gave guidance in that.

Really, looking up to next three years of roughly 40% to 50% growth targets. And when you really look at those numbers, it does read out, it’s fairly high-high double-digits to $10 billion same box if you will. And we’re going to grow our revenues from mid-30 to mid-40s in three years and that included I believe organic and inorganic growth.

So are you just low balling or am I missing something?.

Well, we haven’t given any guidance for the next three years..

No you said that specifically in the call, in the Craig-Hallum presentation, you said our growth for the next three years is 40% to 50%, our outlook and there is going to be organic and inorganic vehicles..

I think that we said our – I think somebody asked what our objective was, what our ideal objective was. That certainly wasn’t a guidance we gave. Right, we didn’t give any specific guidance or target. Somebody asked me what the goal and….

No, that was in your prepared commentary, 40% to 50%. I can call up and read it to you from the same, but I’m pretty much – I took notes and that was exactly. And I saw, [indiscernible] like and you also talked about, historically it’s been audio and one collaboration and specifically mentioned Citrix and WebEx.

If you look at those companies, WebEx was bought out by Cisco I believe for maybe $3 billion. You know when I look at Citrix, [indiscernible] and I’m thinking of myself, wow this is exciting.

We have a huge opportunity, oh, you said the next 5 years, video is going to be [worked out] (ph), so we’re positioned and I’m thinking everything good-good-good, and then I hear 40% to 50% including organic growth, and works out to 10% of your revenue growth. However, I look at our numbers now and [indiscernible]..

Understood your question..

So, I’m just trying to figure out,..

You had a question?.

My question is why isn’t [indiscernible]. Why are we giving – giving 40% or 50% growth targets..

Well, first of all I think somebody asked that in an ideal scenario. Second of all, we haven’t given any guidance and third of all, I think we’ve been pretty detailed in the queue and in the comments about where the business is and where it’s headed currently. [Ends Abruptly].