Good day everyone. And welcome to Oblong Incorporated Second Quarter 2021 Earnings Results Call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Brett Maas, Hayden IR. Please go ahead..

Thank you, operator. I'd like to welcome everybody to the call. Hosting the call today are Oblong's Chairman and CEO Peter 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 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 encourage you to review the safe harbor statement and risk factors contained in the company's earnings release and filings the SEC including without limitation most recent annual report on Form 10-K and other periodic report that identify specific risk factors that may also cause actual results or events to differ materially from those described in the forward-looking statements.

Copies of the company's most recent reports on Form 10K and 10-Q may be obtained on the company's website www.oblong.com or 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 August 25. A link to the website replay of the call is also provided in the earnings release and is available on the company's website at oblong.com. I will now turn the call over to CEO of Oblong, Peter Holst. Peter, the floor is yours..

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 variance on office usage across the globe. Revenue was $2 million up moderately from the prior quarter as sales of our core product Mezzanine.

Gross margins also had an uptick and losses narrowed proportionally. On a year-over-year basis, revenue is 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 multshare.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 Accruent and Amanda, along with 3 new sales people added in the last 90 days are forming a great team whose mission will be to consultatively engaged 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 dimension on this call, but I can absolutely say their collective experience pragmatism and the 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 30, the company at $30 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 whole. 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. It's 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 perfectly aligns with Oblong's vision of meetings goes as follows.

The norms surrounding meetings are right 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..

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 close 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 at the end of July, the company has no debt remaining. With that we can now open the call for questions..

Thank you. [Operator Instructions] And first we'll go to Jim McIlree from Dawson James. Your line is open..

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, yeah. We now have approximately 57 full time employees. And we, as I mentioned in the call earlier, we now have 7 resources on an offshore capacity, Jim..

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?.

Sure. I think the actual number of Q1, I believe we were at 48 folks at the end of Q1 and no engineers and an offshore capacity at the end of Q1..

Okay.

And you did mention hiring new sales and R&D as well, is that correct? Is so the correct increase in headcount is targeted towards those two areas, is that right?.

That's correct..

Okay. And Pete. I think you said you hoped to have authority to use a fulsome beta version of the Multishare later this year.

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. Well, I would - 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 our 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. That's our trajectory on the product roadmap right now..

And so would it be fair to expect the beta last 1 to 2 quarters? And then maybe there's a full-blown introduction?.

Yeah, it's probably 1 quarter. I mean, we've done - we're doing most of our work and 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 customer feedback perspective will come in the form of the beta.

So, will we add things to the beta? Sure, but the beta will be much closer to a GA version of the product. So I expect the beta to last no more than 90 to 120 days..

Okay, and then just back to the expenses.

So is the expense level - it's never fixed, but is expense level stable, at least at this level of activity? Or is there more to come in order to drive the next stage of growth?.

Yeah. I think it's fair to assume we will continue to add talented resources and capabilities in the engineering function over the next 5 months. We will also as the beta as we evolve into a beta will likely add some more marketing expense in that area as well. So I think those 2 areas will we'll see increased expense over the next 5 or 6 months.

I don't think it'll be a factor of 2x or anything, Jim. I think it'll be gradual and systematic from the current levels. But we're not talking about adding 40 or 50 people here, right. We're talking about adding another 8 to 10 folks in engineering probably resources on the marketing side.

They may be internal, they may be external or a combination of both. But I think the expense level from here will go up. But as any software company 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. And then I think this is my last one. So we've seen some companies push their back to work schedule from September to October, who knows what happens after that. But my question is the announcement that I've seen seem to relate mostly to United States.

And so 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 thing..

I think, big picture it's pretty much tied up in this whatever the same thing is. Everybody got a different perspective. I think it'd be nice if employees were collectively jumping for joy, at the prospect of a full return to the office. But that's delusional at this stage.

Most of those are fantasies built on nostalgia about the past, but there is no such thing anymore. You've got to build a foundation and build a company that sort of future proof and ready to consume content and information in a completely different way than we've done 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 suggests that most of their companies remain, irrespective of whether it's in Europe, or AsiaPac or North America or South America are in the same boat, which is it's less really about 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, 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 for the great majority.

And 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, to engage them effectively..

Okay. Yeah, it's a, obviously a challenging environment. So good luck with everything. And we'll talk again..

Yeah. Thanks, Jim. I appreciate the questions. I'll just close, if I could by saying, 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 has forced people in 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 our huge macro headwinds for companies selling into commercial real estate spaces, we've continued to evolve.

We have a fierce resolve and 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..

Thank you. That does conclude our call for today. Thank you for your participation. You may now disconnect..