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.
spk03: Good morning and welcome to the Black Box Stocks fourth quarter and year end 2021 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Stephanie Prince with PCG Advisory. Please go ahead.
spk01: Thank you, Gary, and welcome to everyone joining us today. On the call are Black Box Stocks CEO Gus Kepler and Bob Winspear, CFO. The company would like to remind everyone that various remarks about future expectations, plans, and prospects made on today's call are constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Black Box Stocks cautions that these forward-looking statements are subject to risks and uncertainties that may cause their actual results to differ materially from those indicated, including risks described in the company's filings with the SEC. Any forward-looking statements made on this conference call speak only as of today's date Friday, April 1st, 2022. Black Box Stocks does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today. A replay of today's conference call will be available through the investor relations section of Black Box website at blackboxstocks.com. With that, I'd like to turn the call over to CEO Gus Kepler. Gus?
spk02: Thank you, Stephanie. Good morning, everyone, and welcome to our first ever earnings call. We're very excited to announce that we beat our earnings estimates and guidance. This year has been a great year. It's been a banner year for Black Box. We followed our fourth quarter up list to NASDAQ with a great performance in the fourth quarter. and ended our year with revenue of $6.1 million. That is almost double the $3.4 million we did the previous year. We also announced in fourth quarter that our subscriber base had reached the 6,000 mark or milestone, and that was a very exciting event for us. We have over 6,000 users that we call members in over 42 countries. In addition to our record sales and growth, which Bob will expand on later, we'd like to start by thanking some of the people that have made this an extremely good year for us and made this growth possible. The first people I'd like to recognize are our team traders. They were often referred to in our community as moderators, but they're really traders, educators, and mentors that are online every day within our community, monitoring the various chat rooms, talking to members live in our broadcast-enabled audio rooms and channels, and using our system to communicate to our subscriber base that spans this 42-country group. So it's been a very unique situation because we are lucky to have a company where all of our members can communicate with each other every day, use the analytics that we provide for trading, and speak amongst themselves in a team-like environment. That's what makes our system so valuable. That's the differentiator between what we do and a lot of other platforms that are out there that just provide analytics or are only a chat room. We've had some technology developments that are very important for me to note. We are updating our broadcast-enabled system. We grew so fast in 2021 and 2020, we outgrew our audio-enabled chatroom capability, so we had to augment with third-party solutions. We're in the final phases of completing what we will refer to as a third-party solution replacement, which will greatly streamline what we do. We are also in the final stages. We're currently in a beta stage with our mobile app. We've experienced amazing growth, but we have not yet completed our fully functional mobile app. And by fully functional, I mean an app that encompasses all the analytics that we provide on our desktop system. We have an interim app that provides some push alerts and shows very limited amount of data. But taking on the project of incorporating the massive amount of data and analytics that we provide in our desktop model And putting all of that into the confines of an iOS or Android mobile device has been a major undertaking. But I'm happy to say it looks great. We're in the final phases of beta. And probably the important thing to note for everybody that's an investor is we have not launched this platform officially. It's very close. We expect to do it in April. And when I say platform, I mean the iOS and Android device app. This will cover a major part of the market that we currently cannot service by just the desktop. So our marketing efforts will be even more substantial once this product is ready to be released in April. And that's a very important thing to note. We're armed with a war chest of a lot of cash, which Bob will also expand on. thanks to our successful up list in November of 2021. We are also making continuous improvements on our platform. What makes our platform so incredibly powerful is that it's user-driven. A lot of the features we implement are from our user suggestions because we have a live community daily that interacts with each other. And so we get a lot of amazing feedback and a lot of amazing suggestions from our users. So since we started this company in early 2015, we've been lucky enough to build it on the advice and the suggestions of our users, and that's what makes it such a powerful platform. I often refer to our platform as the best of man and machine. We provide analytics. and real-time data and news for traders. But what makes that information so much more powerful is how it is parsed through our communities and how our communities and the top tier of our traders opine on those analytics in real time. It serves as a mentoring and educational endeavor or exercise for the new members. And many of those new members soon become top tier members of our platform as well. We make trading a team sport here at BlackBox, we like to say. When we built this platform and actually when my other two founding partners, David Kyle and Eric Ferris and I began this company, we couldn't have envisioned that financial literacy, democratized trading and the rise of the retail investor would come to the level it did in 2021. But we're happy to be here. We're in the right place at the right time with a strong balance sheet, an amazing group of technical people and developers that are enabling us to constantly improve our product and release new products. And that's what I want to get to next. The day trading market is hard to quantify. It's hard to quantify what a day trader is. But a day trader can be classified as someone that trades multiple times intraday, sometimes trades intraday once a week, or swings trades overnight. But there's At best, two to three million of those. We're barely scratching the surface of that market of our core product, and we expect that we will continue to expand our trajectory from 2020 to 2021. We almost doubled our gross revenue. I'm setting a goal for us to do that again this year, if not better, with our core product, the BlackBox platform. But we have some other exciting products to talk about. one of which is referred to as Stock Nanny. It's an alert system, a portfolio alert system, and it does not just serve day traders. It's really not even for day traders. It's for self-directed investors, and that market is over 100 million users. We are working with some of our current integration partners at the major online brokerages to develop this product. It's very unique in that it serves the user by providing real-time analytics that might tip them off to a major downtrend in the stock using our predictive technology. All the technology for this product is already available in our tech stack. We just deploy it differently in a new application. We're really excited because the size of the market for this product is enormous. and this will be a new revenue stream. It's not a feature that you add on to BlackBox. It's a standalone app that we're going to sell. We're also working on a cryptocurrency platform, and we'll be expanding on that later in the month or sometime in this second quarter. We also are designing a BlackBox Pro system We currently don't have a tier, a pricing tier for pros, since the exchanges charge a premium for pro traders. And this is a market that we haven't been able to serve yet, even though our analytics are something that many pros like and want to use. So we're going to expand and build a platform and a pricing tier called Black Box Pro. We're excited about our trajectory. We're excited about our products. We're excited about our community and the amazing team traders that have made this amount of growth possible. One of the things that's been frustrating for us is the performance of our stock after our up list. It's been a challenge and we do not feel our current stock price in any way reflects the value of our company. And because of this, we implemented a buyback stock for purchase plan or buyback plan last year. We have been buying shares back. I'll let Bob expand on the numbers. And we're doing this because we don't think there's a better place to invest some of the cash that's on our balance sheet than into our own company because we believe in what we're doing. We believe in our community. We believe in our developers and the technology that we brought to this new boom in retail investing. So like I said, we couldn't have envisioned the retail investing boom that took place last year when we first designed this product. But we're very happy that we had some foresight that this would be a product that would be needed and used. And we think we're at the very, very beginning of an exciting history for this company. We're still a very early stage company, and I feel we have a massive amount of room for growth. So we're looking forward to an amazing 2022 to follow up on our 2021 success. And I want to thank all of you for being shareholders, stakeholders, and believing in our company. And I'm going to turn it over to Bob so he can go over the details of our amazing financial performance that we've had embarked on in this last year. Go ahead, Bob.
spk04: Thanks, Gus. And good morning, everybody. It's my pleasure to run you through some of the numbers for what was obviously an outstanding quarter and year end for us. Revenues obviously is a key aspect for our business as a metric. And we had revenues grow by 62% for the fourth quarter, up to $1.69 million, and by 82% for the full year, up to $6.1 million, both of which were records for the company. As you see, it's going over $3.4 million in 2020. And along with that revenue growth, we also had stronger growth margins at approximately 70% for the year. And we expect that to stay at the current levels given the product we have right now. The fourth quarter was a little bit lower at 66% with some one-time items in there, but we do feel that 70% is continual as compared to the 2020 gross margins that were 52% for the year. And the increase is really just due to operating leverage on fixed costs of the data for us. From an operating income side, you look at our operating expenses. You see operating expenses increased significantly for the year up to $6.5 million as compared to $2.26 million for the previous year. The biggest components of that increase is really stock-based compensation of about $1.35 million for the year as compared to just $100,000 in 2020. And that was made up of about 50% of one-time items, which were not likely to occur at that scale in the fourth quarter, and stock option expense, which has had a new stock option plan we initiated in the fourth quarter or the last half of the year. And that's about half of that $1.3 million. That expense will continue in the future but will be at a lower rate because we had a big chunk of those options vest at the grant date. Other significant SGA cost increases obviously are salaries and wages and investor relations, which is just sort of gearing us up for a little bit of scale. We expect those to stay at or above their current levels but not grow as fast in the future. Other items you see, advertising and marketing grew by about $500,000, but was fairly consistent as a percentage of sales. And as we have stated in the past, we expect that to continue to grow, and we think we can drive sales with aggressive marketing. And as we release new products, particularly the stock and any product that Gus mentioned, we should continue to invest more in marketing. Research and development obviously is key to our business and grew by about $500,000 as well. We are trying to grow that capability as fast as we possibly can, but it's in a very tight market. Obviously, as we continue to develop new products and upgrade our existing products, that number will also grow significantly. And that's really the aspect of the ability to spend money on research and development and people and so forth is really one of the benefits we've had from doing the initial public offering that we completed in November, just gave us the wherewithal to work on this. If you look at the EBITDA that generates us is that for the fourth quarter and full year, we're just under $900,000 of negative EBITDA for both of those periods. And we expect, obviously, the EBITDA probably will remain negative for the coming year. And that's, as I said, as a result of our desire to invest in research and development and infrastructure and advertising and marketing. As we have been profitable earlier in 2021 and in parts of 2020, we could do that, but we'd be at the risk of slowing our growth. And for a company like ours, accelerating our growth is absolutely critical for us and more important. And that's even from a guy with 30-something years of financial experience that tells him to do exactly the opposite. But in this business, it really is critical for us. Looking at the balance sheet, which is one of the first times I get to talk about the balance sheet and spend some time on it as opposed to running away, cash and securities at the end of the year were $10.4 million as compared to just under $1 million of last year. obviously due to the results of our November IPO, and puts us on very strong financial footing. We have the ability to make those investments we talked about and move forward significantly. Our debt level is approximately $1 million and is mostly due in November of this year. We could pay it off earlier, but right now we like having a lot of significant cash on the balance sheet. And for small companies that are deemed a little riskier, having a good balance sheet insulates us from some of that risk and makes us a little bit more comfortable to go with. Unearned subscriptions is the other really significant aspect to our balance sheet. They were approximately $1.3 million as compared to $1 million last year. And that relates to the deferred revenue, which is the accounting for what we have, particularly our unearned revenue from annual subscriptions. is that we amortize that revenue over the course of the year. So if we get somebody signs up in November of this year, they'll amortize the course of that payment that we receive in November, say $959 over the course of the full year. The growth in 2020 and early 2020 was driven really by pretty minor capital infusions. And we got to, let's see, the $3.4 million of revenue we had in 2020 on a shoestring budget with the exception of the million dollar debt we got in the end of 2020. So right now with the war chest that we have for a company our size, we're very, very excited about our capabilities to execute on the roles and the technology developments, the product developments that Gus described earlier. And I join him in being really excited about looking forward to what we're doing in 2022. The other group I'd really like to thank, along with all the people internally, is obviously our members and subscribers. They're the folks that really help us drive this business, because without them, we wouldn't have a business. That concludes our prepared remarks for the earnings call. At this point, we'd like to turn it over to questions with Stephanie.
spk03: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Joe Gomez with Noble Capital. Please go ahead.
spk06: Thank you. Good morning, guys. Congratulations on the quarter and the year.
spk02: Thank you. Thank you.
spk06: So I wanted to start off here. Maybe you could talk a little bit on the subscriber base. You mentioned, you know, back in I think it was December that it had gone past the 6,000 level. Can you provide any update as to where you are today and how you're seeing that trend go forward?
spk02: We are going to release a new subscriber number soon, but we're not releasing it. But I can tell you the trajectory is on track, and we are very pleased with where we're at at the moment. Bob, do you want to expand on that at all?
spk04: Yeah, the only – as you obviously have seen on our website, is that we just concluded a drive on a marketing campaign where we offered a $5 monthly subscription for one month only to new subscribers. So that helped – will help grow our investors, and we'll see how that continues going forward and how long they stay and so forth. So I think we have – some good legs behind that, but as we get a little bit further down the line into the year, we'll be better able to define that better.
spk02: Yeah, and Bob said investors. He meant our member base. Yeah, this is the first time we've ever done a promotion like this, so we want to be very careful as to how we report our member numbers and metrics because We've never done free trials or greatly reduced offers. We did this for a variety of reasons. The main one, Joe, is that we feel our system is so good that if we give people a chance to try it for next to nothing, they'll never leave. And if they were with a competitor, they'll try ours out and find that we have superior analytics and data to anything else that's out there. With the boom in the democratized trading movement or the rise of the retail investor, whatever name you want to give this phenomenon, a whole new host of small chat rooms and analytic providers have cropped up, and some of them are very subpar, and there's a few good ones out there. We still feel we're the leader in the industry for what we provide. So we went ahead and did this $5 offer. So the long-winded answer that you're getting is we want to quantify the retention after this offer is concluded, which was last night at midnight, so that we don't give out what we would consider skewed numbers for a user base that isn't a full-paying user base. So that's why we're delaying to report these numbers. And I'm telling you this, and Bob's telling you this, in the interest of full transparency.
spk06: Okay, yeah, fair enough. Understand. Thank you for that. And on the SG&A expenses in the quarter, you know, they kind of doubled sequentially. Bob, maybe you could just drill down a little bit more there. I know you mentioned some of the stock comp expenses. Is that really what was behind that doubling of SG&A expenses? for the quarter, and it sounded like you would expect that to come back down somewhat, given that some of those were one-time expenses?
spk04: Yeah, that's correct, Joe. If you look at the stock comp expenses, roughly half of that, around $660,000 or so, was what I would consider one-time expenses, which are related to stock-based compensation. That was directly tied to the offering, so that is not going to recur specifically. We may, you know, pay somebody in stock for services in the future, but it's unlikely to be at that level, as well as the stock option expense, which is at the same amount. Together, they're about $1.3 million total, so we'll have those expenses moving forward, but because we had a big chunk of investment occur at one slot, That will not occur. And we also incurred some, you know, some investor relations and PR expenses surrounding the initial public offering, which will continue in the future, obviously, but it probably will not be at that level.
spk06: Okay. Thanks for that. Can you guys talk, you know, some more about on the marketing side, do you expect you know, those expenses will grow. Can you just kind of give us a little more color as to, you know, what kind of avenues or what kind of marketing you're doing there to help drive the subscriber base?
spk02: The primary marketing that our company does is digital on all social media platforms, especially the ones that cater primarily to traders like Twitter is a major – platform for us. But we're expanding into television shortly to kind of get our brand out there to the masses and augment our digital spend. But it's very important for me to stress that we did not put the full force of the new cash on balance sheet behind our marketing efforts yet because we don't want to do it before we have our mobile app released, our fully functioning all-encompassing mobile app. It's been a big, big endeavor because putting as much data as we have in our system onto a mobile device is no small feat. But we've done a great job. But to get back to your question, we want to make sure that we have that mobile app ready to go in the app stores because many people that became traders back in the GameStop, AMC, Memestock, Boom, have unfortunately had to go back to work, and they can't always use their work computer for what we call their side hustle. So in this particular instance, we want to make sure that if we acquire a new user, we can retain them by giving them a mobile device to use when they're either on the go or back at work, which many of them are. So we expect to expand our marketing both on our digital platform and into television, Sometime in the second quarter. Okay. Earlier than later in the second quarter, I might add. Okay, great. We look forward to that.
spk06: And you mentioned, you know, some of the trading integration on some of the other brokerage platforms, the E-Trade. Maybe you can tell us how that's going. I mean, are you seeing any type of, increase of interest from some of those platforms' current clients in becoming black box stocks subscribers?
spk02: Yes, there's always cross-promotion with the major brokerages. We expect to add more and expect to do some extremely extensive marketing behind those integrations. We announced one with TradeStation And we have reciprocal agreements. We also get paid. It's a minor part of our revenue. But when a black box user opens an account with TradeStation, TD Ameritrade, E-Trade, or Tastyworks, we get a commission from them when a user of ours opens a new account with them. At the same time, when we make these integrations more well-known to the public, the users of these platforms, we expect to acquire a large percentage of the day trading users from these platforms. It's also important for me to add that that's why we're adding this new portfolio management system, so we can leverage the existing relationships we have with these platforms who have exponentially more self-directed investors than they do day traders that will use our new product. We expect them to use our new product. I'm very optimistic about what we've created. So the television campaign that I've spoke of will also address this. It'll let users of these online brokerages know that we're out there, what we offer, and if they are a user of one of these online brokerages, they should take a look at BlackBox so they can utilize our amazing tools and analytics and community and educational programs to augment their trading or investing.
spk06: Great. Awesome. I'll get back in the queue and let someone else ask some questions. Thanks, guys. Appreciate it. Thanks, Doug.
spk03: Again, if you have a question, please press star then 1. The next question is from Brian Swift with Security Research Associates. Please go ahead.
spk05: Yeah, thank you. Most of my questions have already been asked and answered, but I missed how many shares you bought back. I know you talked about it, but I didn't get that. So what's your share count now?
spk04: Sure. We have bought back approximately 430,000 shares at an average cost of less than $2 per share. Okay. All right. Thank you. That's out of a total, the total program was $2.5 million allocated towards that. So you have some scale.
spk05: Great. All right. I'll keep it up. On the advertising, I presume that when you're talking about TV advertising, you're talking about going to things like CNBC and Bloomberg or stock-type people. watch as opposed to regular national.
spk02: Yes, we're going to focus on CNBC, Fox Business, and possibly Bloomberg Channel. So those are our primary markets. And they encompass a lot of what I would call non-financial people. I guess I don't know if that's the correct definition, but Maybe not the person that watches Squawk Box every morning, but they might watch Shark Tank. So it covers a broad demographic, even though they're financial networks. So I think it will be a very good way to augment our digital campaigns that have been very successful thus far.
spk03: All right.
spk02: Thank you.
spk03: Once again, if you have a question, please press star then 1. Please stand by as we poll for questions. Again, if you have a question, please press star, then 1. This concludes our question and answer session. I would like to turn the conference back over to Gus Kepler for any closing remarks.
spk02: I want to thank everybody that participated in the call this morning. Again, we're very excited that we had a great year and followed 2020 with almost a double on revenue in 2021. And again, I want to thank, as Bob did, the members of our community, meaning our users, because they are what makes BlackBox the platform that it is. Without the community element, The analytics, although very powerful, do not always translate into winning trades for our members. But with the guidance and the education and the community consensus that goes on every day in our chat rooms, our live audio broadcasts, and our live channel broadcasts, we've created a team across the world of people that love to trade, And I often say we're not just an analytics provider. We're a lifestyle, a culture, and a community. So I want to thank them, our developers, our team traders, moderators, and educators for doing such a great job in managing the community and helping it grow and helping people become successful traders. And I want to thank all our investors for believing in us. And I can promise you that we are very committed to making Black Box a very well-known name in the new social trading era of stocks, options, and soon-to-be cryptocurrency.
spk03: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer