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spk02: Good day and welcome to the Black Box Stocks first quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. 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, Matt, and welcome to everyone joining us today. On the call with me are Black Box Stock 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 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, Tuesday, May 17, 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 the Black Box website at blackboxstocks.com. With that, I'd like to turn the call over to CEO Gus Kepler. Gus?
spk03: Thank you, Stephanie. Good morning. I want to thank all our shareholders, members, and shareholder members for joining the call. today for an update, for our Q1 update. It's been a very interesting first quarter. I don't have to tell anyone on this call that the market's been turbulent, volatile, unpredictable in many ways. And in some ways that creates headwinds for a company like ours. The sole purpose is to provide services for traders in the stock and options markets. The turbulent markets can be very, very good for experienced or seasoned traders, but it often dissuades new members or potential new members from joining our service. So this is a situation where we are very careful to market to new members by letting them know that volatile markets often create an opportunity and can be a trader's best friend. Nonetheless, it still makes marketing to new members or potential new members a difficult task. The good news is we've been here before. We've survived multiple market dips, volatile markets and flat markets. We're not a new service. We went live in 2016 and we weathered the storm over our five year history when markets were not on a bull run. So we know how to do it now. And we did it previously with far less capital or development or tech resources. The previous bull market in 2020 and 2021 especially spawned a plethora of new services, software providers, and chat rooms that compete with our potential new members acquiring our products. So this has also cluttered up the social media channels and made it more difficult for us to get our message out to users, our potential members. That said, many of those that were able to leverage small capital resources and get into business during the good times have already not been able to survive the difficult markets. And in addition, some of the new services that are viable players may be potential acquisition targets for us as we're well capitalized and have the ability to look at new technology, not always as competition, but sometimes as an acquisition target. But as I said, many of the new players in the market that sometimes send a bad message, have substandard services, and give a bad user experience to potential new members have already been washed out. The other potential competitors, we still feel like we have the very best service, but the other ones, like I said, can serve as a potential acquisition target. The current market trend also makes it a little more difficult to acquire new members because unlike the COVID downtrend in the market, we don't have a captive audience sitting at home anymore getting government checks that they want to parlay in the stock market. Having said that, there's still a great interest in our platform, and although we've had headwinds this first quarter, We've been very successful in March in growing our subscriber base. We did what we called a spring breakout sale. And this was the very first time that we offered a extreme discount, almost free trial scenario for new members. We have been against doing those type of promotions previously. Didn't think they were necessary. And we always felt like when you do those type of promotions, you get less than serious new customers if they're not willing to make a $100 investment, which is the price of our software per month. But this particular market trend was a reason to try something new, and we're very, very glad we did. We had an enormous onboarding in March. We grew our user base substantially towards the end of the month. We closed out March 31 with 7,400 members, which at that time was a record of new users, or actual total users, I'm sorry. And this further showed us that we have the capacity to be successful even in difficult stock market scenarios. So I'm very happy to say that sometimes necessity is the mother of invention and we went ahead and strayed from our norms and it was a very, very positive thing for us here. One thing I'll emphasize is after our IPO last November, we have the capital and the financial wherewithal to do these marketing initiatives. The only downside is it cost us some revenue in the first quarter numbers because we gave our service away for essentially $5 per new user. So everyone that signed up for a large portion of March paid $5 instead of the normal 99.97. So that's... A summary of addressing our current market. Bob Winspear, our CFO, is going to go over our specific numbers and answer any questions that you might have with regard to our Q1 numbers. I will make one notation. When comparing Q1 2021 to Q1 2022, Q1 2021 was extremely skewed, in my opinion, because it was at the height of the meme stock craze. where everybody, their uncle, their cousin, and their stepbrother wanted to be a stock trader during the rise of the retail investor boom, Wall Street, Betts, GameStop, AMC, and all that went along with that phenomenon. So those were unusually high numbers, and this particular market scenario kind of muted our ability to continue to show the growth that we have quarter over quarter, year over year. Having said that, I'll recap. We did grow our subscriber base substantially in spite of the very, very difficult market trends that currently exist. Moving forward, we are not a one-dimensional company. Our core product is strong. We've improved it substantially, and we continue to make improvements that I believe put us in the best-of-class scenario for the type of product we offer for day traders and swing traders. But there's a broader market we intend to address. We have a portfolio management tool under the working name Stock Nanny, which we think will address the broader self-directed investor market, which is exponentially larger than the day trader market. In the 100 million user range – total size of market. We also are working on the Black Box Pro system. And we are very interested in doing this because it provides our platform access to professional traders, institutions, and other seasoned traders. And that is a market we haven't been able to address as of yet because there's a different price tier for professionals. So we're very excited about bringing that product into the marketplace this year as well. We've also launched a crypto initiative. All the cryptocurrency markets have taken as much of a beating, if not more of a beating, than the stock market. Markets are cyclical. We've weathered two or three dips in the stock market, and we're not going to be dissuaded from getting into the cryptocurrency market because cryptocurrency is currently in a downtrend. The cream will rise, I believe, and good crypto currencies will prevail. The other ones will be shaken out, and I still think it's a very viable market. So we are working with one of our technology partners, CoinRoute, to provide a very unique experience for crypto traders that we don't think currently exists. And we're excited to bring that out in 2022 as well. We are also very pleased to announce we've built our technology team substantially since our IPO. We have the financial resources to add new developers so that we can build these products in parallel while we continue to improve our core products. We're also enhancing our marketing initiatives. As I said earlier, many of these new services clutter up the social media channels, cause confusion, and often are not beneficial to companies that do legitimate business. There's a lot of bad actors that make very – unrealistic promises to potential new traders. To get above that market noise, we are expanding our budget, our messaging, and we are also going to start a TV advertising campaign on financial networks so that we broaden our reach and further enhance our brand. We already have an amazing brand loyalty, but we want to get out above the social media market noise. So I can't say exactly when, but we expect to be on TV within the next two weeks. We think that'll really send a good message about our brand to the market. We've already been around for five years, established ourselves. We're in 42 countries. We have thousands of traders. an amazing global brand, and we just plan to enhance that. In addition to our technology hires that we think will be significant in ramping up our development and rolling out our products in parallel, we also have been engaged in a stock buyback program. Bob will speak to all the numbers, but we've bought 436,600 shares for an aggregate sum of $860,000. We authorized a $2.5 million buyback, so we are not even at the halfway point yet. And we do this because we're very confident in what we're doing. We think BlackBox has a very bright future because we don't think we've scratched the surface of the market yet, not only in the day trader market, but also... in the broader financial markets and financial services markets. So, having said that, we have the team, financial resources, and an amazing global community of traders that make our product what it is every day. That's what makes BlackBox unique. It's not just our superior analytics and data that we provide traders in real time. It's the community and the community platform that interacts daily that provides the unique best of man and machine experience that is Black Box. Having said that, we're looking forward to very robust 2022. Although our first quarter numbers were not as explosive as we had hoped, I believe that we'll continue on the same annual growth trajectory we have over the last two or three years. And now that we're more well capitalized, have the resources to outspend, outlast, and create superior products to our competitors, we're looking forward to a very, very exciting year and years to come. With that, I'll turn it over to Bob.
spk06: Well, thanks, Gus, and good morning to everybody. I want to go over a few of the key financial metrics for the first quarter. I refer to our 10-Q, which we filed yesterday. If you have any more detailed numbers that you need to see or additional discussion in that filing. But first, obviously, I want to touch about our revenue. The revenue declined from $1.5 million in the first quarter of 2021 to $1.3 million in the first quarter of this year. And as Gus mentioned, that was primarily due to the promotional pricing we provided in March. And that period started in March 10th is when we offered it, and it closed at March 31st. So we were giving up revenue of $95 a quarter. approximately per subscriber that we added on during that time frame. If you look at the average number of users for the quarters, they were slightly up year over year between the first quarter of 22 and the first quarter of 21 and about equal to the fourth quarter of 2021, numbers around 5,700 average users over the quarter. That's why you can see the revenue numbers outside the promotional pricing should be fairly consistent. Looking at the cost of sales and gross margins, you see that same issue poking up again. Our total costs were $580,000 for the first quarter of 2022, which was comparable to what it was in the fourth quarter of 2021 because we had essentially the same average subscriber base. It was about $200,000 more than what we had in 2021 when the total cost of revenues were about just under $400,000. And part of that is due to additional features that we're adding to our platform, and that includes costs associated with the social media and audio data feeds. as well as additional moderators and team traders to handle the higher volume of members. So as we should expect going forward, you'll see that lower average revenue per subscriber will bleed over a little bit into April. as that one month promotion obviously starts in March and will end in April and sort of bleach into a little bit depending on when they signed up in the month of March. Our operating expenses tell a similar story to what we saw in 2021. Operating expenses went up about $949,000 went from $949,000 in 2021 to $1.7 million in 2022, up about $765,000. SG&A is the largest portion of our operating expenses and also the largest portion of the increase. It essentially doubled from just about $607,000 in 2021 to $1.2 million in this year. And that's generally driven by salaries as we increased our staff to handle the increased member base. Investor relations was ramped up significantly in connection with our initial public offering in November. And stock compensation also impacted this quarter, although not as heavily as it did the fourth quarter of 2021. Research and development expense obviously increased up to $185,000 for this first quarter, as opposed to $130,000 in 2021. And as Gus mentioned, we continue to make investments in R&D, and we expect that to continue to increase. Our advertising expenditures, also a key aspect of our offering expense, just under $300,000 for this quarter, which is about $91,000 higher than the first quarter of 2021, but down from the fourth quarter of 2021 by about the same amount, about $2,000. If you think about the cost of the promotion, that cost is about $200,000 of revenue, That promotion can be considered really a marketing expense or an advertising expense from an operational perspective, which is more akin to what we'd spend in advertising dollars, but obviously accounting principles have forced us to place the actual cost of that up as a contra-revenue item. So if you're looking at the overall impact of those numbers, that $200,000 of revenue difference between the quarters It's similar at least operationally to this as an operating expense on advertising and marketing just placed differently on the income statement The combination of those obviously led to EBITDA being approximately $900,000 of negative EBITDA for the first quarter of 2022 versus $149,000 of EBITDA in the first quarter of 2021. And obviously, the Justin D. Patel was fairly similar to what we saw at the end of 2021. Looking at our balance sheet, it's still very strong. You see we have $8.5 million of cash and securities on our balance sheet at the end of the quarter, which declined about $1.5 million from the end of the year. About half of that decline results from the $860,000 we spent on Treasury stock purchases that Gus alluded to earlier, and the balance of that is in the negative EBITDA, essentially. So we still have a strong balance sheet, and with that, we do remain very excited about the balance of 2022, specifically with the new products that Gus mentioned, and expanding the functionality the new target markets and increasing all of our addressable markets. We're just extremely excited about the capabilities of the company going into 2022 and beyond. And as we move forward, I would like to echo Gus' sentiments and thank all of our stockholders for supporting us, as well as our members and subscribers and the entire Black Box team. And with that, I'd like to turn it over to Matt to open it up for questions.
spk02: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Additionally, if you are at your computer, please use the submit a question link in your webcast viewer. At this time, we will pause momentarily to assemble our roster. Our first question will come from Joe Gomez with Noble Capital. Please go ahead.
spk04: Good morning, Gus and Bob. Thanks for taking my questions. Good morning, Joe. So I just wanted to see if we get a little more color on the promotion. You know, how did the onboarding, that's a lot of people coming on at one point, so how did the onboarding go? What's the retention look like? You know, how sticky are these people? You know, can you give us a current count of the users on the platform?
spk03: The onboarding process went well. We were well prepared. We have an amazing team of team traders and moderators and customer service and customer success liaisons. So we were ready to do this. We planned well for it. And it was a very successful promotion. We don't give out interim numbers. We'll give out end-of-quarter numbers because they can fluctuate greatly, and we don't want to mislead the investing public when we have an unusually high number of subscribers, especially when those subscribers may or may not be a $5 one-time user. So we'll report those numbers on a quarterly basis, as we usually do. The only time we make exceptions is when we're at an inflection point and we have an unusually high amount of subscribers, a record number of subscribers, which is what I just alluded to at March 31. But we rarely stray from reporting those numbers because they fluctuate greatly, and it's not a good policy for us to throw out user numbers in between our financial reports. That's just our company policy.
spk04: Okay, fair enough. You recently announced the E-Trade integration. I was wondering if you could give us a little more detail on that and what you're expecting that integration to bring to Black Box Stocks.
spk03: Well, E-Trade is an amazing company. They have a large user base. Being able to create a platform streamlined system for our users to trade through their E-Trade account without leaving our dashboard is a major win for us. And we intend to leverage it in every way possible to let the E-Trade community know about BlackBox and vice versa. We have a referral agreement with E-Trade. We send them a lot of new accounts. We're looking forward to working with them and leveraging that relationship to grow our subscriber base.
spk04: Okay, great. Looking forward to seeing that happen. And I know it's been early days, but what's been the early response to the mobile app so far?
spk03: The response has been overwhelming. It was a daunting task to put all of the data that we supply on our desktop into a mobile application. So unfortunately, to be fully transparent, we were late to get it to market. But we're glad that we waited until we had the product debugged. For the most part, you're always going to have some issues when you launch new technology. But we are extremely happy with the user response and feedback thus far. And part of our marketing efforts going forward will revolve around letting previous members that may not have been able to stay with us because they required a mobile app, that we now have a fully functional mobile app that encompasses almost 95% of the features, if not 95% of the features that are on our desktop, and also a new marketing initiative to let the day trading market know that we have this amazing new technology that's available on iOS and Android. Great.
spk04: And just I don't know if you guys have any additional insight or detail, if you do, and if you wouldn't mind sharing. I mean, stock price obviously has been pretty volatile. The whole market has been. But you guys ran up over. five bucks and then all of a sudden it just crashed right back down a massive, massive volume. I don't know if you have any additional insight as to what was going on there that you could share with us?
spk03: Well, we are in a unique position as a public company because our product caters to day traders. Traders like our product and traders like our stock. Our stock has a very low public float, so it can move parabolically on low volume or what would be low volume for other stocks in the same price range. So traders like our stock. It tends to be predictable in many scenarios. And there is a lot of what I would call short-term trading. We're working to shore that up by bringing in larger institutional investors. And we are currently working with a new consultant to bring longer-term players into our stock. We appreciate the interest from the traders, but we also are looking for longer-term shareholders. So we expect the stock to stabilize as we continue to show our strength in the market as a company and continue to post good numbers and communicate our fundamentals to the investing public and institutions. We think we'll have a more stable and hopefully at a much higher price. I also can opine as a founder of a company that caters to traders and supplies market data that our stock is also a favorite of trading bots. I can tell you that my co-founder was a high-frequency trader. and specializes in identifying these types of trading mechanisms or phenomenon that go on. And some of those days when it trades an enormous amount of shares, Those aren't necessarily human buyers or sellers. Those are algos firing, you know, buy and sell orders, you know, in unison thousands of times a day. So we're a favorite amongst traders, and we're a favorite amongst trading bots, and I hope that answers your question, Joe. Yes, it did.
spk04: I'll get back in queue. Thanks for the update, guys. Looking forward to the rest of the year and how it unfolds.
spk02: Thank you.
spk04: Thanks, Joe.
spk02: Again, if you have a question, please press star then 1. Our next question will come from Dean Lockhart, a private investor. Please go ahead. Yes.
spk05: I was wondering if you'd be willing to make any projections for 2022 because you're excited about just introducing several new products, and as you said, you're not a one-horse or a one-trick pony. You've got more than one product.
spk03: Go ahead. Was that your question?
spk05: That was the first question, yes.
spk03: Okay. So as a CEO, I love to make projections. As a CFO, Bob hates it when I make projections. So what I will tell you is that we will release some information as to size of the market for our new products, but we're not currently doing any projections at this point for our core products or our new products. But we will – in a reasonable amount of time, make announcements about our new products and the expected size of the market. And we may address that in some research reports. I'll let Bob expand on that if you want, Bob.
spk06: Yeah, thanks, Gus. Yeah, as much as I would love to get my crystal ball out and share it with you, you know, we can basically right now is that the two issues that we deal with obviously are that when we're able to actually release the new products, and then also what are those revenues and costs associated with. We have internal financial models on that, but given that it's difficult enough for us to project what's happening in a volatile market with an existing product that we've had for three years, doing so with something that's going to be brand new I think would be a little bit more speculative. We obviously know the size of the markets with respect to catering a product towards the overall investing marketplace as opposed to just day traders and swing traders. It's going to be much larger. We know that the professional investing market with institutions is going to be much stickier. We know the overall ramifications of that. But to sit there and give numbers to the public right now would still be pretty unreliable.
spk05: Okay. A couple more questions. Do you foresee raising capital any time in the next year?
spk03: No. That's something I wanted to address in my statement earlier, but I didn't. We do not have the need for additional capital yet. We have probably spent more in this first quarter than we will spend in other quarters on development initiatives. We did a lot of retooling of some of our products or some of the features on our system. So we have plenty of capital, not only to weather the markets, and put forth some major marketing initiatives, but also to develop the products, many of which already exist off our current tech stack or are derived off our current tech stack. So without the long-winded answer, I apologize for that. No, we don't plan to raise any additional capital at any time in the near future. Yeah.
spk06: The only thing I'll add to that is that I certainly agree with that. We have plenty of capital to last us in our existing operations. The only change in that, if we were to identify and execute a large acquisition, then that may require capital.
spk03: But we would do so with a very – carefully planned strategy where it wouldn't result in a dilutive scenario. We would be adding value to the shareholders.
spk05: Well, speaking to that, you talked about potentially an acquisition. Clearly, you most likely would want to use your stock as currency. You like buying back your stock, obviously, at $1.97. Here we are at $1.51, $1.60. And I'm assuming that there are some restrictions on when you can and cannot buy back stock, and I would assume that you could not buy back stock just before reporting earnings.
spk06: Is that true? Yeah. The plan we have with our stock buyback is a 10B5 plan, so literally we have an outside broker that's able to execute that for us regardless of of those parameters. So whereas we won't necessarily tip our hand as to what we will buy and when we will buy it, you know, obviously we've had an average price of $1.97, and the price is trading below that. So those are the only external factors that are out there, and we've got a $2.5 million authorized buyback that we are not even halfway through.
spk05: No, I really like the idea that you're willing to buy back your stock. It says a lot about your commitment to the company, but also it's just smart. If you can raise money at $5 and you can buy back stock at $2, you do that all day long.
spk03: Yes. Yeah, and I want to expand on that a little bit. A lot of Most micro-cap NASDAQ companies often do a stock buyback as kind of a promotional or fluff piece to send out to the market to hope they get a pop in their stock. We did it for the purpose of repurchasing our shares because we thought there was no better investment we could make with the excess cash we have than in our own company. Right.
spk05: Yeah. And clearly, before you'd make an acquisition, you wouldn't make an acquisition using your stock as currency at all. $1.60 or $2.00. You would like to see the value reflected more appropriately, I would imagine.
spk06: Yeah, that's reasonable.
spk05: All right. That's the only question I had.
spk06: Thanks very much.
spk02: Again, if you have a question, please press star then 1. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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