Intellinetics, Inc.

Q4 2023 Earnings Conference Call

3/29/2024

spk00: Greetings. Welcome to IntelliNetics' fourth quarter and full year 2023 earnings call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. I'll now turn the conference over to Tom Baumann with Investor Relations. Tom, you may now begin your presentation.
spk01: Thank you. Good afternoon, everyone. I am pleased to welcome you to IntelliMedics' fourth quarter and full year 2023 conference call. Before we begin, I would like to remind listeners that during this conference call, comments made by management may include forward-looking statements regarding IntelliMedics that are not historical facts. These forward-looking statements are based on the current expectations and beliefs of management, and they are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. Intellinetics undertakes no duty to update any forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release issued today, as well as the risks and uncertainties included in the section under the caption, Risk Factors and Management's Discussion and Analysis of Financial Conditions and Results of Operations and telemedic's annual report on Form 10-K filed today. Also, please note that on call today, management will discuss non-GAAP financial measures such as adjusted EBITDA, recurring revenue, and total contract value. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today, and the total contract value will be described on today's call. With all that said, I'd like to now turn the call over to Jim DiSocio, Intellinetics President and CEO. Jim, the call is yours.
spk02: Thank you, Tom. This was a strong year for Intellinetics, as we effectively integrated prior acquisitions, grew our recurring SaaS revenue, and established another revenue stream to drive our next phase of growth, our Intellinetics Payable Automation Solution, or what we call IPaaS. We entered 2024 with strong momentum and a stable baseline, with consistent profitability and cash generation. We expect to invest in our IPaaS solution and expand our cross-selling efforts in 2024, enabling accelerating profitability as we scale. For the year ended December 31st, 2023, we grew revenue more than 20% and increased SAS revenue by nearly 28%. This growth combined with prudent expense management enabled earnings per share of 13 cents per fully diluted share, up from just a penny per share last year. Net income was $519,000 compared to $24,000 in 2022. Excluding non-cash items such as depreciation and amortization, we grew our adjusted EBITDA by nearly 14% to a record $2.7 million for the year. This performance includes only a small contribution from our new IPAS solution. As a reminder, IPAS is a new enterprise-class software payables automation solution for financial platforms with very complex cost accounting. We are collaborating with Constellation Home Builder Systems, part of the $5 billion Constellation software family to broaden awareness for iPaaS, especially in the home builder market. To date, four Constellation customers have gone live with iPaaS, and we have now signed contracts with five additional customers scheduled to go live during the first half of 2024. In the aggregate, These nine Constellation customers represent an estimated combined annual recurring revenue of $500,000, and we expect to more than double the customer count in this business over the next few quarters. Importantly, the home builder market is just one of many target verticals for I-PASS. And while Constellation is the ideal channel partner for this vertical, we are pursuing opportunities in a wide range of markets, beyond our constellation relationship, and outside the home builder market. Clearly, we view iPass as a significant growth catalyst for our business in 2024. Beyond the home builder market, we have begun marketing iPass to our K-12 customer base, and we believe there is a meaningful opportunity to cross-sell iPass to existing yellow folder and other K-12 customers. In our core business, we see continued customer demand. With the addition of iPass revenue on top of our growing K-12 business, we expect to accelerate our growth in 2024. We view 2024 as a year for investing in iPass and expanding our sales and marketing capabilities so that iPass represents the next step in our stair-step approach to growing our SaaS revenue. To reiterate, our core business is sustainably profitable. On top of this, IPAS represents a potentially significant growth catalyst for us. We expect to increase our recurring revenue from IPAS as we move to 2024, and we anticipate this revenue to be a meaningful contributor to our top line as we exit the year. Our 2024 budget includes an incremental $400,000 of spend towards accelerating IPAS. This spend will go towards additional sales headcount, expanding and enhancing our delivery team, including an industry specialist, as well as expanding development and project management. For the fourth quarter, our SaaS maintenance and BPO professional services all grew. Our primary focus is on recurring revenue growth, giving us significant visibility into our future results and minimizing the quarter-to-quarter variability from our project-based scanning and storage business. Our base of recurring revenue has reached a point where it exceeds our operating expenses, and our SAS revenue is growing faster than our operating expenses, enabling consistent profitability. In the fourth quarter, we delivered 4.2 million total revenue, including 2.6 million in recurring revenue. And our SG&A costs were $2.2 million, enabling $62,000 in net income, and $754,000 in adjusted EBITDA. We are now systematically profitable. In 2023, we closed 353 contracts with an estimated total contract value of $7.7 million. As a reminder, the total contract value of these orders are generally recognizable in revenue over one year or less. Our K-12 operations now has 591 K-12 districts generating significant SAS revenue, which more than doubles our presence in this vertical market since we acquired Yellow Folder in April of 2022. Importantly, each of these districts is a target for additional telemedic services. As I said, we have significant momentum, and I'm excited for the next year of growth. At this time, I'd like to turn the call over to our Chief Financial Officer, Joe Spain. Thanks, Jim. I will now review our financial results for the fourth quarter of 2023. Total revenue for the quarter increased 3.8% to 4.2 million as compared to 4 million for the same period last year. The following are the components of our revenue presented in our statements of income. Subscription software, which is comprised of SAS, including hosting revenue and software maintenance services revenue increased to 1.68 million for the quarter from 1.57 million for the same period last year. Dash grew 8.8% and consistent with history and as expected, our software maintenance services are growing more slowly and we're flat to 2022. Professional services revenue increased 4.7% to 2.2 million for the quarter from 2.1 million for the same period last year. As a percentage of total revenue, professional services revenue was 53% of total revenue for the quarter, the same as last year. Storage and retrieval services revenue for the quarter was relatively flat year over year at 266,000. Consolidated gross margin increased 98 basis points to 64.9% for Q4 this year, compared to 63.9% last year. The increase was driven by both a better revenue mix, the more growth weighted towards recurring revenue, and positive impact from price increases. Operating expenses increased 17% to 2.5 million for Q4 2023, compared to 2.2 million in 2022. The increase is largely due to the timing of equity compensation expenses, as well as investments in structure and scale. Sales and marketing expenses for the quarter decreased 23% compared to the same period during 2022, which is largely a timing matter. We continue to invest in marketing and sales. As Jim noted, we're expanding our sales force. We're also increasing our trade show activity in 2024, which is important to both our IPAS and K-12 acceleration. Net income for Q4 was $62,000. compared to net income of 201,000 for the same period last year. And as I referenced in the operating expenses a moment ago, there was 195,000 of equity compensation increase year over year contributing to that change. Earnings per share was 2 cents per share compared to 5 cents per share last year and 1 and 4 cents respectively for diluted shares. Our adjusted EBITDA for the quarter was 754,000 compared to an adjusted EBITDA of 670,000 for the same period in 22. Turning to the full year results. Total revenue for 23 increased 20.5% to 16.9 million as compared to 14 million last year. Fast revenue increased 27.8% and professional services revenues increased 24.6%. Consolidated gross margin was 62.6% compared to 63.6 last year. Operating expenses increased 17% to 9.5 million for 23 compared to 8.1 million in 22. Full year net income was 519,000 compared to net income of 24,000 last year. Earnings per share was 13 cents compared to one cent per share last year. Full year adjusted EBITDA 2.7 million compared to adjusted EBITDA of 2.4 million for 2022. Quickly now, a review of Intellinetic's balance sheet. At December 31, 23, the company had cash of 1.2 million and accounts receivable net of 1.9 million. Our total assets were 19 million, including 9.7 million in intangible assets and goodwill as part of acquisitions made since 2020. Total liabilities were $9.3 million, including almost $3 million in debt principal as of December 31. Deferred revenues were $2.9 million, reflecting signed SAS and maintenance contracts. I want to wrap up with a brief financial outlook. Based on our current plans and assumptions and subject to risk and uncertainties we described in our filings and this call, We expect to grow revenues and adjusted EBITDA on a year-over-year basis for the fiscal year 2024. As noted in Jim's quote in our press release today, our IPAS offering provides customers with an almost instant positive return and offers our company an organic growth opportunity to more than double our SaaS revenue over the next four to five years. We view IPAS as a transformative opportunity for our company, and we plan to make investments to position the product for as rapid an adoption as we can drive. Even with these investments, 2024 adjusted EBITDA is expected to grow on a year-over-year basis as we focus on making all the early adopters of IPaaS happy, round out its capabilities, and set the stage for wholesale adoption in select ERP ecosystems over the next four to five years. As a final note, we will be prepaying $500,000 of our long-term debt shortly and expect to have no net debt at the end of 2024, for clarity, meaning debt, less cash. With that, we thank you all for listening, and at this time, we'd like to open the call up to Q&A.
spk00: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 from your telephone keypad. And the confirmation tone to indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants who are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from the line of Howard Halpern with Taglic Brothers. Please receive your questions.
spk03: Congratulations. Great quarter, great year, and hopefully good start to 2024. Thanks, Howard. Yeah. In terms of IPAS and deal, can you talk about deal size compared to, you know, your base offerings?
spk02: Yeah, we could do that. You know, the K-12 offering, documentary management, the K-12 offering, is anywhere from $3,000 to probably $8,000 average sales size. The IPAS offering and the deals we've closed already is north of $35,000 in annual recurring revenue. So there's bigger ones and there's, you know, the average is about $35,000. But as we enhance the product and add more functionality to the product, i.e. PO processing, that will bring the price up a little bit higher as well.
spk03: Okay. And is part of the investments that you're going to be making with iPaaS, are you going to be able to drive down implementation time as you implement more customers?
spk02: Yeah, that's a good question, Howard. So I've been in the software business my entire career, and this was a brand-new release. It was new for our implementation people. So the first two implementations, the first four implementations, It took us a little longer. It was a new product. You find a bug, you have to fix it, implementing it. But now we are very, very confident as part of that development process. We've built some new implementation tools as well. So rather than our people having to go in and actually do the work for the customer, these new tools will facilitate them doing the implementation and a good part of their implementation themselves. So those tools are scheduled to come out and, you know, imminently, so we're in good shape there. And as you know, the more you implement, the easier it gets, the more you learn what the customer is looking for, what they're asking, and yes, we assume that it's going to get much easier for us.
spk03: And are you migrating within Constellation into different verticals, or are you going to other companies to implement IPaaS or
spk02: Yeah, so the plan is to do both. We have hired a sales rep and part of the responsibility is new partners. So now that we're confident that we have a really solid product out there, we are looking at other verticals that we can go into. And we are also, you know, Constellation owns a thousand companies. So we've identified a number of companies that we could start calling on. So again, it is a new release, and it is installed now. The customers are very happy, very, very happy, and we're very confident that we can take this to new verticals within and out of Constellation.
spk03: And circling back to the K-12 offerings, do you still anticipate – New districts coming online in 15 to 20 districts a quarter type of a pace? Is that what you're seeing?
spk02: Yes.
spk03: Okay. And the last question. Yes. No, go ahead. Last question is, you know, you talked about the $400,000 spend. Is that going to be front-loaded in the first half of the year or spread out throughout the year?
spk02: It's spread out, but more towards the back end. We've already hired one sales rep, and we actually have planning to hire some implementation people. And then depending on development cycle, yeah, so it's more back end of the year. I would say third to fourth quarter.
spk03: Okay. Well, guys, keep up the great work. I'm looking forward to seeing the quarter-by-quarter progress.
spk02: Thank you. Thank you, Howard.
spk00: As a reminder, if you'd like to ask a question, you can press star one at this time. Thank you. At this time, there are no additional questions. I'll hand the floor back to Jim DiSocio for closing remarks.
spk02: Thank you, Rob. I'd like to say telemedics is well positioned for continued success. This is the fourth year in a row we've done very well. We have significant momentum, a strong competitive position, growing markets. and a diverse set of solutions with ample cross-selling opportunities. Our business model, structured around recurring revenue, is working. We appreciate the continued support of our longtime shareholders and aim to attract new investors as well by delivering strong and consistent financial results. Thank you for joining us today, and we look forward to speaking again on our next conference call. Thank you.
spk00: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-