Paltalk, Inc.

And welcome to the PALTALK third quarter 2024 results conference call. At this time, all participants are on a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this call is being recorded. I will now turn the conference over to your host, Cara Jenny, CFO of PALTALK. Kara, the floor is yours.

Hello, everyone, and welcome to the PAL Talk operating and financial results conference call for the third quarter ended September 30th, 2024. By now, everyone should have access to the earnings results press release, which was issued earlier this afternoon at approximately 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 and within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements about future results of operations, business strategies, and our 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 statements. 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, including our most recent quarterly reports on Form 10-Q and our annual report on Form 10-K. You should refer 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 adjusted EBITDA, a non-GAAP measure that, when used in connection with GAAP results, provides us and our investors with additional analytical tools to understand our operations. For adjusted EBITDA, we've provided a reconciliation to the most directly comparable gap financial measure in our earnings press release, which will be posted on the investor relations section of our website at www.paltalk.com. And with that, I would like to introduce Paltalk's Chief Executive Officer, Jason Katz.

Thank you, Cara, and 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, 2024. We will also provide an update on our business objectives and strategies. After my opening statement, our CFO, Cara Genney, will give a summary of our financial results for the third quarter ended September 30, 2024. Following our prepared remarks, we will move into the Q&A portion and answer any questions that were submitted prior to this call. With that, I would now like to walk you through the recent financial and operating highlights and near-term business objectives. Our team had a very busy and productive end to the summer, highlighted by the signing of a merger agreement to acquire NewTek Technology Solutions from NewTek One through a two-step merger process. Pursuant to the merger agreement, in closing, we will pay $4 million in cash to NewTek and will issue to NewTek 4 million shares of newly created series of Paltalk's preferred stock. NewTek is also entitled to receive an earn out payment of up to $5 million based on the achievement of certain cumulative average adjusted EBITDA thresholds for 2025 and 2026 fiscal years. We also recently announced our entry into an asset purchase agreement with Meteor Mobile Holdings Inc. pursuant to which we agreed to sell our telecommunication services provider Vumber as well as its Paltalk and CAMFROG applications and all assets related to such services provider and applications to Meteor Mobile in exchange for a cash payment of $1.35 million, the assumption of all our liabilities and obligations arising out of or relating to the transferred assets on or after the closing of the divestiture. The sale of our Paltalk and CAMFROG applications is required under the terms of the merger agreement with NewTekOne. Following the divestiture, Paltalk will retain all patents, patent applications, any rights or causes of actions related to such patents and patent applications, including the patent litigation against Cisco, and any assets, including intellectual property, that are not exclusively related to such applications. We are also entitled to receive, for the six-month period beginning July 1, 2025, and each subsequent annual period beginning on January 1, 2026, 2027, and 2028, certain cash earn-out payments based on a percentage of cash revenue net of refunds received by Meteor Mobile that is attributable to the businesses of the transferred assets that we are selling. We believe the acquisition of new tech technology solutions will provide excellent value for our stockholders. We expect the acquisition, once completed, will have an immediate meaningful impact on our revenue, since NTS revenue in 2023 was approximately three times greater than Paltalk's 2023 revenue. We also expect the acquisition to provide enhanced opportunities for future growth and optimization. We are extremely excited upon closing of the acquisition to enter the cloud infrastructure and cybersecurity sectors with the acquisition of a business we deem ripe for growth, both organically and through potential accretive acquisitions in the future. Given our management team's extensive technology expertise that has been demonstrated throughout the years, we are confident in our ability to integrate, operate, and grow this business and enhance stockholder value. We have an ample cash balance of $12.1 million as of September 30, 2024, and we are excited to focus our attention on growing the technology solutions business. As a result of the entry into the acquisition agreement and the divestiture agreement, our near-term business objectives now include the consummation of the acquisition and the divestiture, integration of the business of NTS following the closing of the acquisition, continuing our efforts to improve user experience with our Minicam software and optimize features for both consumer and enterprise applications, and continuing to defend our intellectual property. On August 29, 2024, a jury in the District Court for the Western District of Texas awarded PalTalk $65.7 million in a verdict against Cisco Systems for infringing U.S. Patent No. 683858. On October 8, 2024, an order granting a motion for final judgment was entered into in the court in connection with the lawsuit. The final judgment was entered in favor in the amount of the award and started the time for filing any post-trial motions. The exact amount of the award proceeds to be received by us will be determined based on a number of factors and will reflect the deduction of significant litigation-related expenses, including legal fees. Consequently, we estimate that we would receive no more than one-third of the gross proceeds in connection with the award subject to the post-trial proceedings, including any potential appellate proceedings by Cisco. Now I'd like to pass it to Kara for a financial summary of our third quarter ended September 30, 2024. Thank you, Jason.

Revenue for the three months ended September 30, 2024 decreased by 23.4% to $2.1 million, compared to $2.8 million for the three months ended September 30th, 2023. Decrease was attributed to a decrease in subscription revenue of 23.9%. Loss from operations for the three months ended September 30th, 2024 increased by 333%, or $1.3 million, to a loss of $1.7 compared to a loss of $0.4 million for the three months ended September 30th, 2023. The increase in loss from operations was attributed to the decrease in revenue for the three months ended September 30th, 2024, as well as an increase in professional fees of 0.8 million in connection with the acquisition agreement and the divestiture. Net loss for the three months ended September 30th, 2024 increased by 731.2% or 1.3 million to a net loss of 1.5 million compared to net loss of 0.2 million for the three months ended September 30th, 2023 and adjusted EBITDA loss for the three months ended September 30th, 2024 increased by approximately 1,046.2% or 1.3 million to an adjusted EBITDA loss of 1.4 million compared to adjusted EBITDA loss of 0.1 million for the three months ended September 30th, 2023. Now turning to our financial results for the nine months ended September 30, 2024, revenue for the nine months ended September 30 decreased by 16.2% to $6.9 million compared to $8.3 million for the nine months ended September 30, 2023. This decrease was attributed primarily to a decrease in subscription revenue of 17.5%. Loss from operations for the nine months ended September 30, 2024 increased by 129.9% or $2 million to a loss of $3.6 million compared to a loss of $1.6 million for the nine months ended September 30, 2023. The increase in loss from operations was attributed to the decrease in revenue for the nine months ended September 30, 2024, as well as an increase in professional fees of $1.1 million in connection with the acquisition agreement and the divestiture. Net loss for the nine months ended September 30, 2024, increased by 274.3% or $2.2 million to a loss of $2.9 million, compared to a loss of $0.8 million for the nine months ended September 30, 2023. Adjusted EBITDA loss for the nine months ended September 30, 2024, increased by approximately 265.1% or $2.1 million to an adjusted EBITDA loss of $2.9 million, compared to adjusted EBITDA loss of $0.8 million for the nine months ended September 30, 2023. Cash and cash equivalents totaled $12.1 million at September 30, 2024, a decrease of $1.5 million compared to $13.6 million at December 31, 2023. And we had no long-term debt on our balance sheet at September 30, 2024. We will now move on to questions. The first question. Congratulations on winning the trial against Cisco WebEx. Can you provide any color on when you would expect to see any money from that judgment and a date range of when that might be?

On October 8th, 2024, an order granting a motion for final judgment was entered into by the court and signed by Judge Allen D. Albright in the amount of $65.7 million in connection with the lawsuit. The final judgment was entered in our favor and start at the time for filing any post-trial motions or appeal.

Next question. In regards to the new technology solutions acquisition, can you please explain and give some detail as to what the business specifically does and perhaps give an example of a client and what it does for them?

NTS provides a range of IT-related services, including managed IT, managed security, managed backup and disaster recovery, secure private cloud hosting, professional services consulting, product procurement services, web hosting, and e-commerce solutions, as well as implementing technology solutions for enterprise and commercial clients across the United States. NTS delivers secure and compliant services to customers within heavily regulated industries, including financial services and healthcare.

Thank you. Final question. As a follow-up to new technology solutions, it appears to generate significantly more revenue than your prior PalTalk business. But what gives you the confidence it's a business with growth prospects? End. Are there additional likewise businesses you feel you can also acquire?

Well, managed cybersecurity and managed cloud hosting are growing rapidly worldwide. We believe the acquisition of NTS gives us the ability to enter the cloud infrastructure and cybersecurity sectors, both business deemed ripe for growth, both organically and through potential accretive acquisitions in the future.

Thank you. Jason, back to you to close out the presentation.

Thanks, everyone, for your support and for joining us today. We're very grateful for your interest in our business. We look forward to updating the market and our stockholders with our progress on our proposed acquisition of New Tech Technology Solutions, Inc., a wholly owned subsidiary of New Tech One, which is expected to close by the end of the first quarter of 2025. Have a great day.

Thank you. This concludes today's conference. You may disconnect at this time, and we thank you for your participation.