Quotemedia Inc

Q1 2024 Earnings Conference Call

5/14/2024

spk01: Good afternoon, everyone. Welcome to today's Quote Media Q1 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Also, today's call is being recorded, and I will be standing by if anyone should need any assistance. And now at this time, I'd like to turn things over to Mr. Brendan Hopkins. Please go ahead, sir.
spk04: Thank you, and thank you, everyone, for joining us today. We have a brief safe harbor, and then we'll get started. Except for historical information contained herein, the statements in this conference call are forward-looking statements that are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially. forecasted results. With that said, I would like to turn the call over to Dave Schwerin, CEO of Quote Media.
spk02: Thank you, Brandon. Welcome, everybody, and thank you for joining us. We unfortunately had a flat quarter in Q1 of 2024, and that was unfortunate, but there were several factors behind the Q1 numbers. We did have a few, I'd say, I'd call them medium-sized firms discontinue use of our data and services at the end of 2023. And it wasn't because they went elsewhere. It was more because they were not succeeding in their business ventures and could no longer support the cost of the data. And some other customers simply moved to lower-cost exchange data, which decreased our top line but doesn't really affect our bottom line. So combined, all of these caused a decrease in revenue for the quarter. That said, we closed new contracts and expanded on existing contracts and replaced that lost revenue, taking us more to a break-even quarter. So that was good. CoMedia actually has a very low churn rate, and our client retention rate runs at about 97%. But what is unfortunate is if that 2% or 3% happens in one quarter like it did in the first quarter, it does hit our books pretty hard. Another factor to consider was that the comparative quarter last year was very strong. In Q1 of 2023, we had an increase of 14% on a Forex neutral basis. So Q1 of this year was measured against that very strong quarter. In any case, we're not concerned. We've got quite a few deals of all sizes in the pipeline, and we do foresee improvements over the coming year. Of interest, prior to Q1, we had 30 consecutive quarters of growth compared to the quarters of the previous year. So I know it was a bit of a shocker as this was our first flat quarter in a long time. I believe the last time we lost a bulk of clients in the same quarter was back in 2016 when we showed a flat quarter then. But if you look back, that was a blip on our radar in 2016, and again, this is just a blip on our radar now. As I mentioned, we do have some large prospects in discussions, but they do take quite a bit of time to close. In addition, I'm excited to say that we will be announcing some new products this year, so stay tuned for some upcoming announcements. And in summary, everything's going really well at Colt Media, and we do feel we're going to have a strong 2024. I'll now pass the mic to Keith Randall so he can take us through the numbers for the quarter, and then we can answer questions. Thank you, Dave, and welcome, everyone. I'll start with the income statement. Note that all comparisons are on a year-over-year basis unless otherwise noted. Overall, we had a 1% decrease in total revenue for the quarter. As previously mentioned, we had a few clients who reduced or discontinued their spending with quote-media. offsetting the revenue from new clients added during the quarter. Breaking down our revenue, interactive content revenue, which is web display content, was flat versus the comparative quarter. A decrease in the number of customers was offset by an increase in the average revenue per customer. Our total closed-stream revenue decreased by 3%. Corporate closed-stream revenue decreased by 2%, and individual closed-stream revenue decreased by 4%. both resulting from a decrease in the number of customers offset by an increase in average revenue per customer. Our cost of revenue consists of fixed and variable stock exchange fees and other data costs and amortization of capitalized development costs. Our cost of revenue increased 1% for the quarter. This is mainly due to increased amortization expense associated with capitalized costs related to improving infrastructure, new product development, data collection, and the expansion of our global market coverage.
spk01: Our gross margin percentage was 50%, a 1% decrease, which was primarily due to a decrease in revenue from the comparative quarter.
spk02: Our total operating expenses increased 4% for the quarter. Most of the increase relates to additional personnel hired to achieve our expansion objectives. including improvements made to our infrastructure, security, and business continuity management. Sales and marketing expenses decreased by 6%. The decrease was due to $78,000 in stock-based compensation expense incurred in the comparative quarter related to the fair value adjustment to our preferred stock warrant viability. The decrease was partially offset by increased personnel costs related to new personnel hired since the comparative period. G&A expenses decreased 5%, primarily due to additional professional fees incurred in the comparative quarter resulting from the change of principal accounts in January 2023. Software development expenses increased by 27%. primarily due to additional personnel hired since the comparative quarter. We also expensed a higher percentage of software developer salaries versus the comparative quarter, resulting in higher development expenses.
spk01: Our net loss for the quarter was $28,000 compared to a net income of $113,000 in 2023.
spk02: The decrease in net income of $93,000 was mainly due to the decrease in revenue versus the comparative quarter. It was also due to expensing a higher percentage of software development salaries. Had we capitalized the same percentage of developer salaries as Q1 2023, our bottom line would have improved by $60,000, putting us in the black. We expect our bottom line to improve for the remainder of the year as pending sales deals close and our revenue growth improves. Our adjusted EBITDA was $677,000 compared to $830,000 in the comparative quarter, a decrease of $153,000. Please refer to the reconciliation included in our press release for the calculation of adjusted EBITDA. Turning now to our balance sheet and cash flow statement, our cash totaled $244,000 at quarter end, which was a $98,000 decrease from our year-end cash balance of $342,000. Our deferred revenue totaled $1.8 million at quarter end, remaining relatively unchanged from year-end. The future costs associated with realizing net revenue is minimal, as the majority of our deferred revenue relates to setup and development work already completed. Those set up in development piece have been deferred and will be recognized in future quarters over the service contract to which they relate. Our year-to-date net cash flow from operations was $728,000, while net cash use and investing activity was $825,000, primarily due to spending on infrastructure and product development. Thank you, and I'll now pass it back to Dave. Thank you, Keith. Okay, we're now happy to open up the call for any questions. If you have any future questions after the call, please feel free to reach out to Brennan Hopkins. That's bhopkins at QuoteMedia.com.
spk01: Thank you, Mr. Schworn. Ladies and gentlemen, at this time, if you would like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question, and we'll pause for a moment to allow questions to queue. And we'll take our first question this afternoon from Ankur Sagar.
spk05: Hey, good afternoon, Dave and Keith. Thank you for taking my questions. Regarding the top line being flat, I would appreciate if you could please elaborate and explain a little bit more as to, you know, what number of clients did we actually lose this quarter? And, you know, I think you sell the solution to a varied, you know, base of clients. But, you know, if I were to ask you, like, what percentage of clients, you know, out of the total client base, I mean, you have in this category, like, you know, new solutions where you probably monitor the usage of your data or the products is not, you know, as it should be. as compared to an high-usage client base?
spk02: Not sure I followed that last point. Could you explain that a little bit?
spk05: So, you know, normally a subscription company would monitor or track its product usage, you know, using some kind of analytics as to, you know, how the products are being used, are the products are being used actively, you know, or not. So I think you mentioned in your prepared remarks that these clients that you lost were basically using your data sets to create new businesses or new solutions that, you know, didn't lead to, you know, I guess any revenue for them, so they stopped the users too. So, I mean, what percentage of your client base you probably say would fall in that category? Because I think it would make sense for us to monitor, you know, that sort of usage and client base if we don't do it.
spk02: Yeah, of course. We always track all of our clients and we work with our clients. But, you know, you have to realize that we're a supplier of market data, products related to market data, research, all of those things. So when a company comes to us and, you know, one of the firms was, a massive firm that decided to go down a certain path. And over the last year, they decided to invest in a whole pile of new products that they wanted to put out that had to do with market data and displaying certain information in a certain way. And after a year, they determined that that business venture for them was not successful. And they were a large client. They were pretty big. And they came to us and terminated towards the end of the year to say they're discontinuing that service, they're discontinuing that model, terminating all their staff in that area, and they're not going to go down that path. And so they canceled the contract with CoMedia. That's an example where it hits us. It hurts. At the same time, we're working on new clients and closing new deals. But, yeah, you kind of, you know, we run at 97% retention on clients. So only 3% leave us for one case or another. I can't control if somebody's business doesn't work. Another area is where they come to us and they want to decrease their spend and with all the data and the exchanges. Exchange fees are getting very, very expensive for firms. So there's now lots of different options on how you can take data and decrease your costs. Maybe you just can't show as much real-time data to your clients. Maybe you need to go delayed. Maybe you need to change the levels of data that you're showing. Maybe not as many level two clients can see data. So They decrease their spend, but we're working with them. They're our clients and we want to listen, so we don't want them to decrease their spend. But if they need to, they're going to go elsewhere or we're going to help them. So they decrease their spend, but it's exchange fees. It doesn't affect our bottom line at all because we still have our service fee. But, you know, it's business. It's economic conditions. It's what's happening in the marketplace, what's happening with businesses. At the same time, I mean, we're meeting with firms, very large firms, very big deals, looking to replace incumbents that are very large, and things are going really well. We've got new product lines. We've got new stuff coming out, and very happy clients. So it's just... It just happens, right? And if you get a few of these that happen at the same time, which happens, you get an effect that, you know, we actually dropped quite a bit more with the lost revenue, but we brought it all back. We closed more deals and got it up to pretty close to break even, a little bit under, but, you know, we'll pass that again. So it just happened, and it happened kind of all at once. That's all.
spk05: So, in terms of this churn that we experienced, you know, does this number include at all or is there, you know, more that happens in Q2 or the number that you have right now in Q1 is the number, you know, that includes that?
spk02: Yeah, we don't have, I mean, anybody can come in tomorrow and say, look, we just can't make it work. But we're not expecting that. We don't have others that are doing that at this time. And at the same time, you know, it's a bit of a hole that you have to climb out because it's a recurring revenue client that that recurring revenue is no longer there. So then, you know, you replace it, and then you've got to grow above that. So, yeah, it happens. It just happened. It hit us pretty hard there. Mm-hmm. You know, it's since, what did I say, 2016 is the last time that happened.
spk05: Yeah, it is very unusual. I thought that the retention rates were pretty high, so that is very unusual for sure. In terms of the top line, you know, Dave, what is your expectation? You know, I don't know if you can comment something on it sequentially throughout the year. based on the pipeline you have and what you expect to close or where it stands in terms of closing and with this happening, how do you expect the top line to fare out going forward sequentially from here on?
spk02: Well, you know, that question comes up a lot, and it's always difficult because of the sizes of the deals and the time it takes to close them, right? Right. Sometimes you think, okay, that one's on the radar. It should close in the next three months, and it's going to be maybe six months. It's going to be maybe nine months. So that's the difficulty. The smaller ones close, and they come and go. You know, we're always working on those, and those happen fairly quickly. But those are just kind of our standard minimal growth. It's those big guys that come in, and they take a long time. Okay. A lot of that's happening. There are some really good ones that are in discussions and kind of going through taking out incumbents, replacing three or four providers, that type of thing, taking over for a firm. And that's where if they close, well, then we surge and everybody looks at this, you know, forgets this quarter. It didn't matter. You know what I mean? It's just we just balloon after that. So that's our focus. And I think... It's looking like we should get some of these this year, of course, right? Like, we're working on them, so fingers crossed. Keep rolling.
spk05: In terms of, I mean, you know, we still continue to invest towards software development. Is it fair to say that, you know, you have some, you know, is it fair to look at it this way, that you have some signed business where you're investing into the development let's say, to put the data sets into customers' tools or anything. And that is why, you know, there is the deferred revenue. But at some point, you'll be able to, once this goes into production, you'll be able to realize that deferred revenue. And that would also increase the recurring revenue line as well.
spk02: Oh, yeah, absolutely. I mean, the deferred revenue, I can't remember, is it $1.8 million or something? The problem is that you collect all this money from clients and then you have to defer it. And it's actually going in or starting to go into the books as revenue, but some of these are a five-year client, right? So their setup fees and development fees and everything, which could have been fairly substantial because for large firms, You do bring in quite a bit of money up front to get started with them for setup fees and things like that. But that gets spread out over five years. And unfortunately, that's the deferred revenue. So, yeah, of course, that'll hit the books and that'll look good. But some of them are long. And we want long-term clients. We want them to sign a five-year deal. So, you know, there's good with the bad, right?
spk05: Yeah. And then a couple of last ones. From a gross margin perspective, I think what you relayed in the last call was that, you know, Quote Media has built its own data sets to take out third-party vendors, and that should help, you know, from a gross margin profitability standpoint. Do you expect that to improve the gross margin going forward?
spk02: Yes, absolutely.
spk05: Is it only a function of revenue growth or could you have gross margin can become higher even with current revenue as it stands?
spk02: No, it's about growth. It's about growth, yeah. Because in the past, you deal with a third party and as you're using the data more with more clients, you're spending more and more and more. Now we don't. So essentially... If we bring a client, say, a million-dollar spend on a data set that's now ours that we own, that's a million-dollar profit, right? Because it's not costing us anymore to run that data set, to collect that data set, to normalize it, churn it, QA it, all this stuff that we're doing. So, yeah, I mean, it was costly to do what we're doing, but in order to become a top-level player in the industry, you can't do it with third-party data from other companies. You can't build other companies on data. You have to build yourself. So that's what we've done, and that's where our margins should improve. And the power that we have improves. The control that we have, the risk is gone. There's all kinds of reasons why it's the right thing to do, and we needed to do it. Got it.
spk05: And I think you mentioned in your prepared remarks regarding new product launch. We'll probably have to see some, hopefully, press releases on that. If you could, you know, just comment on that. I think it was hard for me to dig through, but I saw – that you have released a new product. I think it was the Quote Media, the QMFR, the Quote Media Fund Research in 2023. And if you could just share anything about what kind of new products that you're working on. Is this for existing clients or you still have to sign new clients for these products?
spk02: So, yeah, the new product line we're going to be announcing is coming up fairly shortly. We already have several clients on it. They've been kind of the proof of concept, but actually going live and launching and preparing to launch. So it should be imminent, I would say. maybe in a month or less. We'll be putting it out. Will these be branded products like off-the-shelf where anybody could use that product, or is it more like data sets for – No, it's more product-related with all of our data running the systems, right, and then working with firms to produce what they're looking for. It's kind of one of our biggest plans of attack over the last year, and it's all coming to fruition now, which is great. So, yeah, we'll be putting it out shortly.
spk05: One last one, Dave. I think with a lot of buzz about the AI, which is really, in a nutshell, an intelligence based on data, what media has – spent the last few years building its own data set and owns a lot of its own data now. If you could just share any stuff that you're working with AI to really harness intelligence from these data sets that you have built for your clients, that would be great.
spk02: Yeah, we've been in it probably longer than most, even before it hit the the limelight and went crazy with chat GPT and all this stuff. So, you know, a lot of our stuff is obviously there's core data and core information. And then there's our AI machine learning and all of that. It's doing proprietary analytics, algorithms and different things to bring out signals. And yeah, I mean, there's, there's a lot to it. So on top of my head, I can't think of the words right now, but yeah, We're very focused on that, continuing to focus on that, and we've got a team that's actually planning the future of growing that continuously so that we're always involved in AI and producing the data that the user or the person is trying to get out of all of the data and having the computers do it all for you. So, yeah, we meet on it almost every week. There's a lot ongoing there. And, yeah, it's something we've been doing over time for quite some time, actually.
spk05: Great. Great. All right. Great. Thank you, Dave. Thank you for taking my questions. Hope to see good news. Thank you.
spk03: Okay. Thank you.
spk01: Thank you. We'll take our next question now from Kenneth Ellis.
spk03: In the area of hiring, what does your hiring situation look like this year? And where are you going to hire additional personnel? In the sales staff?
spk02: Yeah, we just finished a round of sales hiring, so that's complete. Yeah, I don't think that we've got dramatic hiring in areas. We kind of have pretty well-structured teams. Last year we did hiring for our trading integration teams because we hadn't a bunch of more clients sign up for, uh, integrated trading into our closed stream products and things like that. But yeah, I don't think we have, you know, a lot of, uh, I don't think we have like a surge of hiring to do as, I guess, as we keep going, we'll see what's needed and see where we expand. But right now we've been doing pretty well and we put, we put a lot of, of, uh, people into the data collection and data aggregation, data cleansing, all of our proprietary stuff. So that's kind of the nut.
spk03: In order to increase, let's say, your bottom line by 10 million people or by $10 million, what would you have to hire to do that?
spk02: Oh, I think it's nominal hiring. I mean, I don't think we need to go crazy. Yeah, we've got... A lot of, you know, what we've built is kind of fixed structure. You know, we don't need a lot more people for everything. It would be nice to have, you know, a little bit more redundancy, a little bit more people in certain areas. But, yeah, I know what you're asking. Yeah, you're asking are we going to have to balloon our staff to match the revenue, and the answer is no. Well, that's very pleasant to hear.
spk03: That's basically all I have. Yeah.
spk01: Thank you, Dave. And we have a question now from Colin Gilbert.
spk00: Good morning, Dave. How are you? Good.
spk03: How are you?
spk00: Hanging in there. Dave, there's a number of the holders of stock that have been in this company for literally decades, and we haven't been able to see the fruits of our investment. What are we doing, or what are you doing, to either get the stock upgraded and uplifted or to maybe not take the home run but maybe a three-bagger and get us out of this and walk and say, well, we had a good run and we're there now.
spk02: Well, yeah, I mean, everybody's got different plans and different goals, of course, right? The uplisting is always something that we're looking at. We always have to match, you know, have to hit the targets. Maybe cross-listing is another thing that we're looking at. Basically, it's just, yeah, we're continuing to grow, continuing to close the deals and the clients, and when the timing's right, you know, and then I say it all the time. It's just the timing's got to be right, and everything's got to be perfect for us to make it happen. So that's our goal. And right now, it's focus on growth, focus on business, focus on where's this company to make it powerful in the industry. We're having calls with clients where if you could be a fly on the wall, you would be amazed at what they're saying about how we do it right, where we listen, we care, we focus on the client, we provide good data. It's all good. Everything's going really well. It's just Got to keep going, right? Got to keep building and getting more known in the industry, and it's happening. So what's your exit strategy? I don't know, right? That's the question.
spk00: Well, unfortunately, the stock doesn't trade, so it's very illiquid. Exactly, yeah.
spk02: So we have to try to solve that.
spk00: Yeah, we have to solve that. What about if we do not have any more glitches like we seem to have had in the first quarter, which I thought you guys would have known about earlier, other than getting it slammed right away. We did know.
spk02: Yeah, we did know about it. Yeah, it's just, you know, what do you do about it?
spk00: Well, you can communicate it. I think that it would be nice. You had an uplifting at the end of the year and positive attitude to where the company and stock was going. What about now? If we don't have any more glitches, do you still see getting back on that quarterly growth period where we seem to have consecutive quarters of growth rather than flatness?
spk03: Yes, of course.
spk02: Yeah. Yeah, of course. That's the goal. That's the intent. That's the vision. We expect growth. I mean, we're meeting with clients and closing deals, so... It's just what level of growth will it be? Will it happen bigger in Q3 or Q4? Those are the questions we just don't know. But, of course, yeah, we're forecasting growth, continuous growth.
spk00: Okay. That's my question for this call.
spk01: Okay. Thank you. Thank you. And, gentlemen, it appears we have no further questions this afternoon, so that will bring us to the conclusion of today's Quote Media Q1 Financial Results Conference call. We'd like to thank everyone so much for joining us today and wish you all a great remainder of your day. Goodbye.
Disclaimer

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