Paltalk, Inc.

Good afternoon, and welcome to the PAL Talk Third Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode. It is now my pleasure to turn the floor over to your hosts, Jason Katz, Chief Executive Officer of PAL Talk, and Cara Ginney, Chief Financial Officer of PAL Talk. Cara, the floor is yours.

Hello, everyone, and welcome to the PAL Talk Third Quarter 2022 Operating and Financial Results Conference Call. By now, everyone should have access to the earnings results press release, which was issued earlier today after the market closed at 4 p.m. Eastern Time. This call is being webcast and will be available for replay. In our remarks today, we will include statements that are considered forward-looking within the meanings of the Private Securities Litigation Reform Act of 1995, including forward-looking statements about future results of operations, business strategies and plans, our relationships with our customers, as well as market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks, uncertainties, and assumptions related to factors that may cause actual results to differ materially from those anticipated in the forward-looking statement. We offer no assurance, that these expectations and beliefs will prove to be correct. A detailed discussion of such risks and uncertainties are contained in our filings with the SEC included in our most recent annual report on Form 10-K for the year ended December 31st, 2021. You should refer to and consider these factors when relying on such forward-looking information. The company does not undertake and expressly disclaims any obligation to update or alter our forward-looking statements whether as a result of new information, future events, or otherwise, except as required by applicable law. On this call, we will refer to certain non-GAAP measures, including adjusted EBITDA, that when used in combination with GAAP results, provides us and our investors with additional analytical tools to understand our operations. For each non-GAAP measure, we have provided a reconciliation to the most directly comparable GAAP financial measure in our earnings press release, which will be posted on the investor relations section of our website at Paltalk.com. And with that, I would like to introduce Paltalk's Chief Executive Officer, Jason Kass.

Thank you, Karen. Good afternoon, everyone. We greatly appreciate you taking the time to join us on today's call. We will discuss our operating highlights and financial results for the third quarter ended September 30, 2022. Additionally, we will provide an update on our business strategy, including initiatives to reinvigorate growth in subscribers, advertising, and revenue, and highlight our first few months of owning and operating the Minicam software and our initiatives with our investment banking firm for strategic accretive acquisitions. After my opening statement, our CFO, Cara Jenney, will give a summary of our financial results for the third quarter ended September 30, 2022. Following our prepared remarks, we will move into the Q&A portion and answer any questions that were pre-submitted prior to this call. With that, I would now like to walk you through the recent highlights. While our revenue continues to be impacted by the macroeconomic environment, we are pleased with the early traction and results of ManyCam and its ongoing integration with our portfolio of products, PalTalk, CamFrog, and TinyChat. ManyCam is a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps, distance learning tools, which greatly complements our large collection of video-based communities. During the past three months, we signed up corporate customers for ManyCam subscriptions, advancing the business-to-business channel. As ManyCam is sold primarily pursuant to annual subscriptions Its revenue is accounted for in a manner consistent with our other subscription models. And accordingly, we expect the cash received up front to initially outpace the subscription revenue recognized. We anticipate that subscription revenue related to ManyCam will increase in future quarters as the deferred revenue generated from ManyCam subscriptions is recognized. We have several near-term objectives that we believe, when achieved, will result in positive milestones for our business and potential growth for our company. First, our team is continuing to adjust our spend to better align with overall macroeconomic conditions and invest in a measured way that ensures responsible cash management. This was apparent during the third quarter as our operating expenses decreased considerably compared to the previous quarter, resulting in a 1% decline in our overall expenses. More specifically, sales and marketing expense decreased 23% compared to the second quarter of 2022, which had the effect of increasing adjusted EBITDA by 14% compared to the prior quarter. Our reduction in expenses and efforts to streamline business efficiencies was ongoing throughout the third quarter, and we expect this reduction to continue into the fourth quarter. Second, we continue to work with our investment banking firm to explore strategic opportunities, including but not limited to, potential mergers or acquisitions of other assets or entities that are synergistic to our business. In addition, our product team continues to optimize our acquisition of the ManyCam software to not only maximize subscription revenue, but to integrate and cross-sell with our existing customer base and explore business-to-business sales opportunities. Our technology and development teams continue to implement several enhancements to our live video chat applications, as well as the integration of card and board games and other features focused on user retention and monetization, which collectively are intended to increase user engagement and revenue opportunities. We remain focused on developing our consumer application platform strategy by seeking potential partnerships with large third-party communities to whom we could promote a co-branded version of our video chat products, potentially sharing the incremental revenues generated by these partner communities. Finally, we are continuing to defend our intellectual property. In regards to our July 23rd, 2021 filing of a patent infringement lawsuit against WebEx Communications Inc., Cisco WebEx LLC, and Cisco Systems Inc. and the US District Court for the Western District of Texas, The trial is currently scheduled for the first quarter of 2023. On September 7th, the United States Patent Office issued a reexamination of the relevant patent. Our cash position as of September 30th, 2022 remains strong at $15.5 million, which we believe puts us in a good position as we seek a return to growth and profitability. We plan to continue to develop our consumer application platforms as we seek to build stockholder value of note earlier this year, our board of directors approved the stock repurchase plan for up to $1.75 million of the company's common stock pursuant to the plan. We have repurchased 317,089 shares of common stock and an average price per share of a dollar 80. or an aggregate amount of $572,000 during the nine months ended September 30, 2022. I trust this gives you some insight into the company initiatives we have implemented in order to conserve cash as we look to increase our subscribers and user engagement and return to positive cash flow and profitability to build stockholder value. Now I'd like to pass it to Kara for a financial summary of our third quarter ended September 30, 2022.

Thank you, Jason. Our results of operations for the three months ended September 30th, 2022 were as follows. Revenue for the three months ended September 30th, 2022 decreased by 0.8 million or 22% to 2.6 million compared to 3.4 million for the three months ended September 30th, 2021. This decline was primarily attributable to the decrease in subscription revenue of 19% or $0.6 million related to the macroeconomic environment, as well as a decrease in technology service revenue as a result of the termination of our partnership with Open Props, Inc., formerly known as YouNow. Loss from operation for the three months ended September 30, 2022, totaled $1.1 million, an increase of $0.6 million, or 132%, compared to operating loss of $0.5 million for the three months ended September 30, 2021. The increase in operating loss is primarily due to a decrease in revenue of 0.8 million, coupled with increased product development expenses of 0.2 million, or 11%, in connection with implementation of newly purchased software tools for marketing, as well as increased general and administrative expenses of 0.2 million, or 22%, in connection with non-cash amortization related to the ManyCam asset acquisition. Net loss for the three months ended September 30, 2022, totaled $1.1 million, an increase of $0.6 million, or 157%, compared to net loss of $0.4 million for the three months ended September 30, 2021. The resulting net loss per share of common stock for the three months ended September 30, 2022 was 11 cents per share as compared to a net loss per share of common stock of 5 cents for the three months ended September 30th, 2021. Adjusted EBITDA for the three months ended September 30th, 2022 totaled negative 0.8 million compared to adjusted EBITDA of 0.3 million for the three months ended September 30th, 2021. Cash and cash equivalents totaled $15.5 million at September 30, 2022, a decrease of $6.1 million compared to the $21.6 million at December 31, 2021. Of note, $2.9 million of cash was used for the acquisition of many CAM assets, and $0.6 million was utilized in repurchasing common stock pursuant to the stock repurchase plan. Currently, the company has no long-term debt on its balance sheet. We will now move on to questions that were previously submitted. The first question, are you still working with third-party companies and trying to market to new potential users and subscribers?

In response to the economic downturn and reduced sales, we reduced our overall marketing and spending. However, we still continue to work strategically with partners wherever possible.

The next question. In mid-August, you previously reported that you had over 300,000 new installs of ManyCams since June. Has that pace or growth continued?

That pace is consistent with what we are seeing since. And although still early, we are encouraged.

Final question that we got. What percentage of ManyCam installs are from existing PalTalk customers?

Well, most of the installs are currently not PalTalk users, so we believe that bodes well once we are able to really effectively cross-market the products fully.

Jason, I'll turn it back to you to close out the presentation.

Thanks everyone for your support and for joining us today. We are very grateful for your interest in our business. We look forward to updating the market and our stockholders with our progress on our organic growth initiatives and potential strategic accretive acquisitions, which we continue to identify and analyze. Have a good day.

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.