Quotemedia Inc

Good day, everyone, and welcome to today's Q3 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 the star and 1 on your telephone keypad. Please note, this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Dave Schwarm. Please go ahead, sir.

Thank you. Welcome, everybody, and thank you for joining us. I have a brief safe harbor, and we'll get started. Except for historical information contained herein, the statements in this conference call include forward-looking statements that are made pursuant to the safe harbor provisions in 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 from forecasted results. And now we're happy to go over our 2024 Q3 results. Our revenue results were pretty much the same as last quarter. We achieved just under $4.7 million in revenue for the quarter. We did, however, increase our deferred revenue, totaling $2.3 million at the end of the quarter. The majority of our deferred revenue relates to setup and development work already completed. This year has been a struggle for a few of our clients, and unfortunately, if they don't succeed, then we are affected. However, hopefully, this is not a recurring trend, as this year there have been a few clients that have decreased their spend, and it has hit us a bit hard. We have closed other contracts to get back to a flat line, but it has certainly been unfortunate. We do have a lot of new clients in the pipeline, and we're getting closer to getting some of these larger deals signed. Even though we had a flat quarter, everything is going well, and we do feel we are going to have a strong finish to the year, and 2025 is looking to be very exciting. 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. Breaking down our revenue, interactive content revenue, which is web display content, decreased 3% from the comparative quarter. We had some customers who reduced their spending with quote media, offsetting the revenue from new customers added during the quarter. Total quote stream revenue was flat, with corporate quote stream revenue increasing 1% and individual quote stream revenue decreasing 1%. 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 10% for the quarter. This was mainly due to increased amortization expense associated with the capitalized costs related to improving infrastructure new product development, data collection, and the expansion of our global market coverage. Our gross margin percentage was 46%, a 6% decrease, which was primarily due to the increase in our cost of revenue from the comparative quarter. Our total operating expenses increased 10% 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. Bills and marketing expenses increased 23% due to increased personnel costs and an increase in stock-based compensation expense. We incurred negative $57,000 in stock-based compensation expense in the comparative quarter related to the fair value adjustment of our preferred stock warrant liabilities. G&A expenses increased 2%, primarily due to the increase in bad debt expense related to the $175,000 increase to our allowance for bad debts, resulting from a significant client discontinuing our services due to their financial struggles. Software development expenses increased 6%, primarily due to additional personnel hired since the comparative quarter. Our net loss for the quarter was $441,000 compared to net income of $126,000 in the comparative quarter. The decrease in net income was mainly due to increased personnel costs as well as the increase in our bed debt allowance. Our adjusted EBITDA was $367,000 compared to $720,000 in the comparative quarter, a decrease of $353,000. 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 $291,000 at quarter end, which was a $51,000 decrease from our year-end cash balance of $342,000. Our deferred revenue totaled $2.3 million at quarter end, which was a $500,000 increase from year-end. The future costs associated with realizing that revenue is minimal as the majority of the deferred revenue relates to setup and development work already completed. Those setup and development fees 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 2.6 million, while net cash used in investing activities was also 2.6 million. primarily due to spending on infrastructure and product development. Going forward, we're expecting a return to positive revenue growth in fiscal 2025 based on pending sales in the pipeline. We also intend to reduce our development spending as a percentage of revenue as some of our major development projects near completion. As pending sales deals close and our revenue growth improves, Combined with cost control measures, we expect our bottom line to improve in 2025. Thank you, and I'll now pass it back to Dave.

Thank you, Keith. So we're now happy to open up the call for any questions. So over to the director.

At this time, we will open the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad and you'll be placed into the queue in the order received. You may remove yourself from the queue at any time by pressing pound and one. Once again, to ask a question, please press star and one on your phone now. And our first question comes from Michael Kopinski.

Thank you. Thanks for taking the questions. I have a few here. How much of the revenue decline in Q3 was related to the client loss? And I was wondering if you can give us a sense of how much revenue that client might account for on an annualized basis, if you can just give us some thought about that. And then while we're on that subject, if you can just give me a little insight on the competition and the tone of the current business environment. Keith, do you want to handle the numbers?

Yeah.

The most significant during the quarter, we had a client and that, you know, we're still expecting or expecting to collect some of their outstanding balance. But we had a client that basically has some financial struggles. I would say their annual income is, their monthly is probably about $20,000 a month, I would say. So annual, I'd say $20,000. $250,000 roughly a year.

Gotcha. And then if you could just talk a little bit about the tone of the current business environment.

Dave, do you want to address that part?

Yeah, I can talk about that. So the tone of the current business environment is excellent. So things are really good. We actually got hit over the course of the year and even at the beginning of the year by other clients that had problems and decreased spend and all this. So this was probably the hardest year in the history of Colt Media. And yet we're still getting through it and we're actually closing deals to make sure that we're break-even and not having all those losses that happened with the clients that disappeared or decreased their spend or went under. So it was just a bad year for them. Probably the most anomalous year, but everything is going well. The, I mean, just looking at our pipeline and the size of the deals in the pipeline that are in the works right now, it's looking really good. And I'm, I'm actually super impressed with where we're going to be in 2025. Like I think there's a lot happening. It's just, it's just the negative stuff. That's the,

That's the tough part. Yeah. And if you would look at the, obviously your focus is on 2025, I would assume then that Q4 revenues are likely to be down a little bit. Is that what you're anticipating?

It'll depend on how quickly things close. They'll be relatively flat in Q4, but whether we're positive or negative is really going to depend on how quickly some of the new deals we have close.

Yeah.

I think you're, I'm sorry. Sorry. I was just going to say, I mean, I'm, I'm kind of just, the reason we had to delay this call until today was because I was on a, on a trip, um, to meet with, uh, you know, some of our largest clients. So the, it sounds like, it looks like we're going to have probably a tremendous amount of deferred revenue come in very quickly in, in Q4, but it's just the ongoing is going to be into 2025. So, Yeah, it's a lot of setup fees, a lot of development fees, a lot of front end stuff.

Okay. And if you were going, you mentioned about R&D expenses going, being a little lower. Can you kind of give us a sense of what the annualized savings might be there for in 2025?

Well, that's something we're still working through, but we are putting a plan together because we finished a lot of the development of all of our new data sets and our new services. So that's going to be a work in progress as we go starting in Q4 and going forward. We're not needing to build as much stuff anymore. We've got a lot of product and a lot of data. So now it's just going to be focused on distribution.

And I noticed that the sales and marketing expenses were a little higher. And did you add sales staff in the quarter? And how many FTEs does the company currently have?

Yes, we did add sales. We have expanded our sales team, and it's more just because we want to have broader reach into all the different conferences and trips and things like that. So there's a big push now on sales, on marketing, on getting into every single conference that's out there and meeting with as many clients as possible. So that area has grown, and then the development area we're going to – decrease the spend in some of those development areas. How many salespeople are there? I think we've got, I don't know, nine, something like that in the sales area. Okay. All right.

Sorry. Then we have additional personnel and sales support as well.

Yeah. I'm just talking about the top line salespeople and then there's a whole team below them.

All right. Okay. Okay. That's all I have. Thanks. Good luck to you guys.

Thanks. Our next question comes from Eric Nickerson.

Hi. Just a quick question about your accounting. I understand when you bring in a new client, they pay up front with deferred revenues to fund the development. And then going forward, I'm assuming with their subscriptions, they pay in advance. which all leads me to wonder, why do you guys have to deal with bad debts?

Not all our clients are paying in advance. We do have some annual and quarterly clients. The majority of our clients are monthly.

We also can't do... We can't do pay in advance on a lot of things like exchange fees because you have to... take a look at all the usage, and then report that to all the exchanges. But we are going with as much pay in advance as possible because I think some of these contracts are a little bit older and have been a little bit too lenient as far as pay in advance.

I see. Okay. So you do have some people that pay in arrears. All right. Thanks. That's all I wanted to ask. Thank you.

As a reminder, if you would like to ask a question, please press star and one on your phone now. And we have a question from Daniel Wilson.

Hey there. Thanks for taking my call today. Question on the contract that you won. You mentioned the deferred revenue increase. For those of us who are trying to just look for signs of growth and what might be around the corner. Can you help characterize those contract wins, just orders of magnitude versus what you already have? It's difficult looking at deferred revenue to really draw a trend and try to estimate what kind of an annualized impact might be from those contracts. Just looking for additional color on that front. Thank you.

Yeah. Well, I mean, it all depends on the client. So we have Some clients that start with us and their setup fees are going to be very small, maybe a one-month or two-month kind of number of their recurring revenue that we get up front for setting up their product. If there's a lot of development work and a lot of preparation and people that go into creating that product or getting that product to market, then the deferred revenue is quite substantial. So we can have... $300,000, $500,000, even up to a million in deferred, depending on the size of what we're doing for a client. If it is a large amount, it usually will kick in over time. So maybe one-third as you develop a certain part or they get ready to launch, and then another third and another third, that type of thing. So it all depends. Sometimes it's all up front if it's a smaller amount, and then it'll be spread out over time if it's a large amount, but then it has to be deferred over the term of the whole contract, which could be up to five years.

And just to add to that, we don't start recognizing revenue on that work until they're ready to go live, until we've performed all our performance obligations and accounting terms, but So yeah, so we can't start recognizing that revenue until they go live. And then at that point, it's amortized to the end of the service term to which it relates.

Got it. That makes sense. So for the contract that you did win and the growth and deferred revenue, you've mentioned for a little bit now, y'all definitely been chasing some of the larger contracts. Were these some of those larger contracts coming to fruition, or are these more smaller, medium-sized and still looking to close one of the larger deals?

Yeah, still, well, there's a couple medium ones, but the larger ones are kind of, I was hoping to have them closed in Q3, but it looks like we're going to get something going in Q4, and then maybe even also more in Q1. But it's going to be a lot of deferred revenue because It's all new stuff. It's new projects. It's new development for large companies. But it's going to be substantial. So things are going well. It's just the numbers don't show it. But hopefully in the future quarters, we're going to start to show what this all means.

Got it. Thank you.

And it appears that we have no further questions at this time. I will now turn the program back to our presenters for closing remarks.

Okay. Well, thank you for joining us, everybody. I don't really have much more to say. We just have to get our head down and keep going. We're doing lots of trips, lots of conferences, and chats are going very well with quite a few large firms. So thank you, everybody, and we'll talk to you soon. Give me a call if you ever have more questions. Thank you very much.

Thank you. This does conclude today's Q3 results 2024 conference call. Thank you for your participation. You may disconnect at any time.