Recently Glowpoint put out the news they had record call volumes and I thought it made sense to learn more so I interviewed the company's CEO Michael Brandofino. The company plays in spaces which have been resistant to the slowing economy - namely videoconferencing, telepresence and contact centers.
I should mention Glowpoint has a market cap of just under $15 million as I write this article but in the last year, its performance has been down 33% which is better than down 36% for Cisco.
Why do you think your company had record call volumes?
There is a combination of factors that are driving increased video call volumes for the overall industry - and for Glowpoint in particular. There is a perfect storm that has developed and points to video communications as the solution for many of the concerns facing businesses today. Concerns such as the global economic recession, global warming, terrorism, erratic fuel prices, and the desire for corporations to be global in order to be competitive. These concerns have persuaded companies to view video communications as a critical tool for everyday business.
Glowpoint has especially benefited from this perfect storm because customers are increasingly turning to service providers who can support - and manage - their video communications needs. We reported during 2008 that we had achieved record sales in the third quarter, due to valuable telepresence customers. In fact, a majority of customers had locations activated in November and December, which resulted in increased revenue, as well as increased usage.
Did this equate to record revenues?
Glowpoint's core revenue is broken into two main areas: Contracted monthly recurring, and usage-based. About 70 percent of our revenue is monthly recurring revenue, and it's tied to contracts typically with terms of one, two, or three years. Usage-based revenue consists mostly of multi-point conference services, and one-time events, in which customers use services on an "as-needed" basis.
The great thing about a recurring revenue model like ours is that we can grow on a consistent basis, assuming that churn remains low. We have had more than seven consecutive quarters of growth in our recurring revenue, thereby achieving record revenue due to the increased volume and new customer activations.
Are prices/margins being squeezed in this environment?
We haven't seen any significant pricing pressure for our services, because we provide an unlimited usage model that represents a significant savings when compared with the two common alternative ways of pricing video communications. One is a phone service called ISDN, which essentially involves special phone lines requiring at least six simultaneous phone calls to support video. ISDN usage is extremely expensive and results in local - and long distance - charges that can run up hundreds of dollars per hour. The other way is building your own network and video infrastructure, which can be extremely expensive if you consider the equipment, network, and human resources required to support such a service. Our customers generally enjoy a savings of 50-to-70 percent by outsourcing their video needs to Glowpoint.
What sized companies were the biggest customers these past months?
Glowpoint has increasingly been winning contracts from large, multi-national companies. Towards the end of 2008, Glowpoint closed deals with two U.S.-based companies that had annual revenues exceeding $1 billion USD, in addition to a European-based energy company that had annual revenues in excess of $23 billion USD.
When do you expect to get your company to profitability?
Our management team has steadily improved all of Glowpoint's key metrics, while continuing to drive innovation and surpass the competition, since we took over the company in 2006. Our goal is to achieve positive operating income in 2009, but we have not provided specifics on exactly when we anticipate achieving that goal.
Do you believe your company's market cap is an accurate reflection of your value?
No, we do not. We feel our market cap does not adequately reflect the value of our company, if you consider that approximately 70 percent of our revenue is driven by a diverse portfolio of customers tied to contracts with monthly recurring revenue commitments and that our overall gross margin has grown to approximately 43 percent.
And also, we averaged more than $6.2 million in quarterly revenue through the first three quarters of 2008 with seven consecutive quarters of growth in subscription revenue.
Combine these performance metrics with the fact that the surface of the market opportunity for video communications services has barely been scratched and I think it is clear why we believe we are currently undervalued at this time.
How is telepresence doing as a market segment?
The interesting thing about the telepresence space is that the lines are becoming extremely blurred regarding what telepresence specifically "is." Originally, telepresence referred only to the high-end rooms in which the entire room was designed to create an immersive video communications experience. However, Cisco and other companies have extended this to include simply high-definition (HD) videoconferencing systems as well. Either way, telepresence has had a tremendous impact on the video communications industry because it has increased the awareness of the extraordinary quality, and functionality that is available. And it also validates that video communications can be valuable, everyday tool. Much of the new business that we won during the second half of 2008 was related to telepresence and HD, and we believe that business will continue into 2009.
How about video call centers?
Our initial implementation of our video call center solution was tailored for the banking industry; in fact, our initial customer was one of the largest banks in the world. Given the recent challenges facing the banking and finance sectors, a number of the opportunities we were working on have been put on hold. As a result, we have put less emphasis on this solution, and more emphasis on driving managed services for telepresence.
Tell me more about your Telepresence inter-Exchange Network (TEN)
TEN is one of the most exciting new developments that we have been working on. The best way to describe TEN is to go back to what people really understand, such as the audio world. When you install a phone system, you always install a circuit to the carrier, and that provides you with the ability to dial, and call off of, your private business network - in a secure manner. No one can call you unless you give them your number, or if you list it in a directory. It allows you access to services, such as long distance, in addition to the ability to call people on other networks, such as cell phones or on private phone networks. So even though you are in your business, and I am in mine, we can still talk to each other. That's a service provided by the audio carrier.
"TEN" is the video service equivalent. When a company purchases video equipment, they can connect to a video communications interface. They get a dialing plan with access to features and services, such as video multi-point calling, video mailboxes, and user portals to manage their accounts. It's about being part of a global video community, and having access to web-based global scheduling, so that you and I can schedule video calls together because we are both connected through TEN. Or we can even make a direct video call on an ad-hoc basis. It also offers secure network connectivity so that people can leave their private network to call another private network - safely. And it's about operational services because, just like an audio bridging service, similar services must be available for video communications as well.
Think of it as a global video community similar to the popular business network called LinkedIn, or the social network called Facebook. We are not replicating their model or brand, but the analogy is great way to explain the concept. If I were linked to you, I could send you a message and say, "Let's do a video call." You could approve it. And then, even though we are both on separate, secure networks, the video call would be automatically connected. TEN is about maximizing the value of video technology - by making the use of it frequent - and easy.
What can an Obama administration do to increase American competitiveness?
As a CEO of a small business, I am keenly aware of the challenges facing businesses that are trying to compete in a global economy, especially small, publically traded companies. The burdens related to taxes and regulatory requirements are a hindrance to our ability to invest in creating more jobs and remain competitive. Small companies, like Glowpoint, thrive as a result of the entrepreneurial spirit that allows management and employees to benefit from their hard work, ingenuity, and resourcefulness in the form of options and stock grants. However, due to excessive income and capital gains taxes, that entrepreneurial spirit can be stifled should workers feel penalized if they are successful. The Obama administration should look for ways to encourage business owners, and management, to invest in expanding their businesses. The administration should even consider incentives for growing revenue, and stock valuations, without penalizing success with higher taxes.
Where will your company be in 5 years?
Our visionhas always been to be the "de facto standard" service provider for video communications - on a global basis. I believe this is needed, and many in the industry feel the same. We are stepping forward to hopefully become the central video service fabric, and global interconnect, through our TEN offering. It's really akin to what AT&T used to be for long distance telephone. Everybody's long distance service passed through AT&T as recently as probably 30 years ago. For the foreseeable future, that's going to have to happen in the video communications industry for it to truly become a mainstream communications tool. Some central guiding body is going to have to drive video communications between companies. The vision for Glowpoint, and I believe the vision for the industry, is to have someone like that. We believe that "someone" is Glowpoint.
Therefore, in five years, I would like to think that Glowpoint will become the primary "providers' provider" of video services, as well as their underlying service fabric globally.
We are a visual culture, as shown by the popularity of things such as You Tube, and cameras on almost every cell phone. So it stands to reason that video communications is here to stay.
We are in the very early stages of the adoption of video communications - and the upside potential is substantial. We feel we are in the best position to benefit as video adoption continues to grow in the foreseeable future.
Based on these responses it seems the video call center market will evolve more slowly than some thought and moreover it is good news to see there doesn't seem to be much pricing pressure in what seems to be a deflationary economy.
I am also very interested in seeing how the company's Telepresence inter-Exchange Network (TEN) evolves. Will it become the global video community the company hopes. Is there room for a single major video service provider in the world? I say yes. Will it be Glowpoint? We will see.
What is certain is the future of video seems bright based on a variety of factors and companies which learn to leverage it in their businesses will be more productive and those companies such as Glowpoint that can become essential video suppliers should fare well as the market grows.