Professional Diversity Network, Inc.
Q3 2014 Earnings Call Transcript

Published: 15 Nov 2014

[Operator:]

Greetings and welcome to the Professional Diversity Network's Third Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I'd like to remind listeners that during the call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the Company's business and financial results to differ materially from these forward-looking statements are described in the Company's periodic reports filed with the SEC from time to time. All information discussed on this call as of today, November 14th, and Professional Diversity Network does not intend and undertakes no duty to update future events or circumstances. It is now my pleasure to introduce your host, Jim Kirsch, Chairman and CEO. Thank you, Mr. Kirsch. You may begin.

[Jim Kirsch:]

Thank you, operator, and thank all of you for participating in our call today. With me are David Mecklenburger, our Chief Financial Officer; Ms. Star Jones, President, Mr. Matt Proman, Chief Operating Officer; and Mr. Chris Wesser, our General Counsel. This afternoon I will discuss our progress in the third quarter of 2014 and then we'll turn the call over to our CFO who'll review our financial results. Finally, Star Jones will provide her comments on our Company. After Star's comments, we will open up the call for questions. I'd like to take this opportunity to update you on our recent merger with NAPW and an overview of our progress to-date. I will then discuss our Q3 results and additional information relating to our operations in October. I can't express to all of you enough the extraordinary value the NAPW management team has brought to the Professional Diversity Network. This talent, combined with our newly formed Board members, including Ms. Donna Brazile, Ms. Randi Zuckerberg, Ms. Star Jones, and Mr. Matt Proman. With their combined talents, we are uniquely positioned for growth and success. I'd like to express to you a little more detail about some of the stars of our new management team. Matt Proman, our COO, has over 19 years experience as an operator of large and successful direct sales operations which have demonstrated results of growth and profitability. Matt has been an extraordinary business partner and has worked diligently throughout our integration process. Star Jones, our President, has an outstanding business acumen in addition to her superior communication skills and marketing expertise. Ms. Jones is a notarized personality and known and respected leader in diversity inclusion. Chris Wesser, our General Counsel, is really, in addition to being a General Counsel, a very strong operator with broad management responsibilities. The broader team at NAPW has a phenomenal and energetic sales organization. It has a passionate membership development team who continually strive to provide value to NAPW members and an outstanding creative and marketing group. Additionally, we have fortified our financial department with several members of the NAPW team. Let me now provide you with an update on our integration. We completed the merger with NAPW as of September 24, 2014. Since that time, we have exceeded our targeted amount of cost reductions that were formulated prior to finalizing the merger and we have now identified approximately $3 million of annual cost savings opportunities across both entities, including the sub-lease of one of our facilities which will save the Company approximately $300,000 a year. The management team believes these cost savings won't have an adverse impact on our ability to generate revenue in the near or long term. The management team and supporting staff are now working together as a collaborative business unit. The Company is now 70% complete in the development of the new NAPW networking site, which we anticipate will launch in the first quarter of 2015. In 2014, NAPW held one national event. Next year, in 2015, the Company will present 18 national events and regional events. These events enhance the membership value and provide opportunity to increase our membership base. NAPW experienced an increase in new membership growth, a growth in total new paid members and revenue this October as compared to last October. Simply said, NAPW makes PDN a better business and PDN makes NAPW a better business. PDN's corporate recruitment relationships are exceedingly valuable to the NAPW members for career opportunities. Additionally, due to the purchase of Careerimp that PDN made last year, our technological platform is very strong and leverageable across the NAPW network. We will be launching the new NAPW site next year, which will provide greater engagement opportunities, employment opportunities, business relation opportunities and networking opportunities for our members. The events business that PDN will purchase next year is now being leveraged to provide greater connectivity in a physical environment with NAPW members, both member-to-member and member-to-corporate sponsors. In addition to that, PDN is benefiting from the National Association of Professional Women's talent pipeline by connecting those talented women with employers who seek to hire professional women. Ms. Star Jones will provide a greater level of detail as it relates to NAPW later during our call today. Our diversity recruitment products experienced increases in all major categories, including an increase in booked revenue, an increase in recognized revenue, an increase in partnership revenue and an increase in e-commerce revenue. We are pleased to report that the Company exceeded its recruitment revenue for the quarter year-over-year despite the loss of revenue we received from the end of the termination of the LinkedIn contract. We added premier new clients recently, including the Securities and Exchange Commission, Xerox and Coca-Cola. Our sales team is highly engaged with numerous new potential clients now, the most important recruitment quarter of the year. Our CFO will now go into greater detail as it relates to our financial performance for the quarter. David?

[David Mecklenburger:]

Thank you, Jim. I'd like to reiterate that with the addition of NAPW and their management team, organizations are integrating smoothly and benefiting from our shared strengths. I'd like to now briefly highlight the results from our third quarter. Total recognized revenues for the quarter were $1,575,000. This represents a 61% increase from the 979,000 in the same period one year prior. Our direct sales bookings for the recent quarter more than tripled to 512,000 from 150,000 in the comparable previous year quarter. Partner revenues grew from 28,000 in the third quarter '13 to over 91,000 third quarter of 2014, a 225% increase. Our e-commerce revenue saw an increase of 174% from 16,000 a year ago to 45,000 in the most recent quarter. In our events division that we purchased at the end of the third quarter last year, booked 198,000 in the recently ended third quarter of this year. Through the efforts of our direct sales team, we were able to not only replace but exceed the revenue loss from LinkedIn in the most recent quarter ended. Total operating expenditures increased 50% due in large part to the inclusion of NAPW operations at the end of the third quarter, bringing the total expenditures to 2,158,000 compared to 1,439,000 in the same period one year prior. About half of that increase, 349,000, was the result of our merger on September 24th. The remainder reflects growth in marketing costs and growth in our direct sales team as we put more effort in our direct customer contact along with the cost of running our events. Total assets for the Company were 77,370,000 at September 30, 2014, an increase from the 22,020,000 that the Company reported at December 31, 2013 and this is attributable in large part to the goodwill and other net assets acquired in the merger with NAPW. These assets include the value of their customer list, their database of leads, proprietary processes and systems and the trade name. Jim, I will hand it back to you.

[Jim Kirsch:]

Thank you, David. I'd also want to compliment you and your hard work and outstanding efforts to close the NAPW merger and work with the new NAPW to realize favorable cost savings. I will now turn the call over to our President, Ms. Star Jones. Star?

[Star Jones:]

Thank you, Jim. Working with the PDN and NAPW executive teams to transition into one merged company has been an exciting and wonderful experience for me. And Jim, I want to personally thank you for all you've done and allowing me to put together the NAPW-PDN benefits, resources and initiatives for 2015. That support has been invaluable. Hello, everyone. I'm Star Jones, President of the Professional Diversity Network and the National Association of Professional Women. 2014 has been a year of action for NAPW and PDN. NAPW has grown to over 600,000 members with nearly 300 local chapters as of this month. Over the past year, my development team and I have created a vast array of new member benefits, providing new and improved opportunities for our members' personal and professional success. The investment in professional women making themselves through membership is evident in the following new benefits, resources and initiatives in four key areas planned for 2015. First, the NAPW Career Center. For professional women seeking employment or if they had a job to post, our new Career Center offers the ability for members to connect with employers, upload a résumé and customize their job search. When members create an account, our career job board is free and gives them the opportunity to receive customized job alerts along with the following

[Jim Kirsch:]

Thank you, Star. I'd like to further comment in addition to my earlier comments about Star and the new members of our executive team. Obviously Star has these outstanding communication skills. And maybe not so obviously, she has been able to connect us with leading employers and has been responsible for material wins are already on the PDN side. I can tell you that she really is a very focused and successful businesswomen. I would encourage everyone not to simply think of Star Jones as this personality and a spokesperson for the Professional Diversity Network, even though that she has already been on local and national TV numerous times in the last few weeks since our merger closed which has resulted in increased membership for both NAPW and PDN and increased traffic for PDN, but she also has rolled up her sleeves and been a true efficient and aggressive business operator, and I will add, very well liked by the entire team. Matt Proman also has been just an extraordinary business partner. I really have never met anybody who has his business skills, his insight and his business intuition. Matt is an incredibly strong operator and also understands the direct sales model and membership model exceedingly well. He has been a great business partner today. I am really looking forward to working with him in the future. And as I said, Chris Wesser, our General Counsel, he's more than a General Counsel. He is a very intense operator, very liked and respected by the entire organization. And I'm pleased that David and myself have had the opportunity to work with these three professionals and I can assure our stockholders that we are all working together as one business unit, one executive team and we are very focused on providing stockholder value in the months and years to come. With that said, I'd like to turn it over to our operator for the questions portion of our call. Operator?

[Operator:]

Thank you. We will now be conducting the question-and-answer session. (Operator Instructions) The first question today comes from Andrew D’silva of Merriman Capital. Please go ahead.

[Andrew D’silva:]

I think you covered most of my questions in your prepared remarks. Just first off though, David, is the $349,000 that you mentioned in operating expense include contributions into cost of services? And then, I see NAPW's membership fees broken out, so I guess I can figure out the top-line myself unless there is other revenue items that are put into other line items there?

[David Mecklenburger:]

As you said, the top-line numbers are separated on the P&L statement. And to answer your question, the direct cost of sales and services, there is about 24,000 reflected in there from the PDN post merger operations.

[Andrew D’silva:]

And is that inclusive in the…

[David Mecklenburger:]

That's part of the 349.

[Andrew D’silva:]

And then you did a very good job explaining the Career Fair, that was actually one of the things that I wanted to touch on, but since you've spent a good amount of time on that, my last question is, as a company that's completed a merger and working out kinks, is there anything that you've discovered that you're either missing or would like to add either through strategic partnerships, internal build outs or tuck-in acquisitions that you think would be additive to your current business models?

[Jim Kirsch:]

Well, I think that it's important to note that the NAPW merger to us is a two plus two equals eight. We believe that the NAPW membership base will grow, the revenue will grow and that membership base will provide a very valuable talent pipeline to the Professional Diversity Networks' recruitment partners. We are planning and scoping additional products and services which we'll be deploying in 2015 including corporate membership programs for NAPW. And we continue to remain very focused on providing all diverse professionals with economic opportunity. NAPW really truly fits well into that mission. We will continue to look at strategically advantageous opportunities for the Company to grow organically and inorganically. This obviously was our biggest acquisition to-date and we are aggressively working towards making sure that we're providing all the value possible on the combination of these two businesses. But I'm really pleased with the early progress that we've made in integrating these businesses. Some of the things that are off balance sheet that could cause some concern in any merger would be the blending together of two teams, two cultures and personalities. And I'm very pleased to report that we have really come together as business operators and as friends and we have a common focus, common objective and we're executing against the common mission. So, I believe that opportunities will always be available to us and we're going to be selective in pursuing those opportunities in the future, but certainly we'll continue to look at them.

[Operator:]

(Operator Instructions) Our next question comes from Ron [Shales], a private investor. Please go ahead.

[Unidentified Analyst:]

I assume you've established appropriate costing and metrics having to do with membership retention at NAPW. Can you speak to that and any initial touch and feel for success or problems there on retention?

[Jim Kirsch:]

Specifically as it relates to retention, we are very focused on that. You would have noticed from Ms. Jones's comments that a good portion of her conversation focused around providing enhanced benefits for members. Again, the things that you don't see in an income statement and balance sheet are that we made an extraordinary investment in technology that is a networking platform that NAPW members will benefit from. In addition to that, Matt has created a compelling structure in order to increase the touch points that NAPW are going to have and have began to already have with its members. As I said in my opening comments, we did provide a little bit of insight into October. It was a very strong month for the Company, both on the recruitment side and for the NAPW membership side. Retention was up, new members were up, gross number of memberships were up, revenue was up. And we believe that the enhanced technological platform. I mean in addition to the tech, bringing 18 events that are of quality on a regional basis versus one national event and still cutting $3 million out of a business that did $19 million in 2013 creates the opportunity to number one drive additional events revenue, but number two and possibly more important to bring the NAPW physical experience to more members. So if you are thinking about becoming an NAPW member and you live in Dallas or Washington D.C. or Los Angeles or Chicago, now you have the opportunity, instead of just going to one event in New York, you have the opportunity to go to a total of 18 events. We held our first event in Chicago recently. Approximately 30 employers paid to participate in that event and connect with our members and connect with NAPW, extraordinary employers like Accenture, Blue Cross Blue Shield and other very, very strong companies. They all rated it either good or great and all but one said that their hiring needs for the coming year were going to be greater than they were this year. So it enables us -- bringing these NAPW events is only possible in the economic value proposition that we are putting forth because we are already doing PDN events and combining these events together making the PDN event better but they also provide NAPW in economical manner of reaching their members. And reaching the members with more frequency providing more retention efforts, providing a stronger networking platform is in our opinion the formula to increasing retention and really having a true focus on the membership success going forward.

[Unidentified Analyst:]

Just one other question. You've talked a lot about the benefits and an exhaustive list -- an extensive list I should say programs and activities. Have you also been zealous on the cost side with respect to delivery and margins?

[Jim Kirsch:]

Well both NAPW membership and PDN's online recruitment services are extraordinarily high margin business. And so…

[Unidentified Analyst:]

What does that mean, high margin, what kind of percentage?

[Jim Kirsch:]

I will let our CFO comment to the exact percentages of margins. But, our margins at PDN have been -- you may know if you look back in time, our gross margins have been very high and you will see that the gross margins of NAPW historically have been very high. On the cost side, we’ve run costs on the business and we did that without sacrificing the opportunity for near term revenue growth or long-term revenue growth. And so we will continue to expand the business and expand it with high profit margin product categories and do so in the most efficient manner possible. David, do you want to speak for a moment to the gross profit margins on both product lines?

[David Mecklenburger:]

The similarities in the business models are one of the things that attracted us to the combination. Both companies' direct costs of delivering services probably averages around 20% of sales, giving us roughly an 80% gross margin. The events business is the exception of that. The cost of putting out our events are significantly higher. Those margins tend to fall more around the 40% area, but still very strong.

[Operator:]

The next question comes from Tony Polak of Aegis. Please go ahead.

[Tony Polak:]

Just for future reference, the best time to do a conference all generally isn't 4

[Jim Kirsch:]

Certainly, David. Just the acquired company, David.

[David Mecklenburger:]

The revenues of NAPW -- give me one second -- for the first nine months of 2014 were $18.9 million.

[Tony Polak:]

Can you give us a breakdown of what that revenue came from?

[David Mecklenburger:]

That revenue comes from membership revenue, that comes from products that they sell to their members, it comes from profiles, it comes from press releases that they sell and they also sell an annual membership book.

[Tony Polak:]

Could you give a separate down approximate, where it comes from?

[David Mecklenburger:]

Rough numbers, I would say 80% to 85% of it is the membership revenue.

[Tony Polak:]

And could you give us a number on how many members are present?

[Jim Kirsch:]

You want me to jump into that, David?

[David Mecklenburger:]

Go ahead, Jim. I don't have this in front of me right now.

[Jim Kirsch:]

There's approximately 600,000 total members, approximately 60,000 paid members.

[Tony Polak:]

And what do the members get that are not paying?

[Jim Kirsch:]

The members who don't pay get an inclusion in the Career Center. They don't get the inclusion in the NAPW networking site. And they also get and the ability to attend one networking event so that they can experience the chapter events and connect with more aggressively engaged members.

[Star Jones:]

And Jim, may I add, please? When an initial member becomes a member, they not only have access to the Career Center, but they have access to job listing and they can get job alerts. They have access to attend one NAPW networking event for free on their local level or on one of our professional networking events. And they also get a career assessment and they use our proprietary résumé product, which is Resunate, for 30 days. So the value in becoming an initial member is in hopes of encouraging you to see the benefit and the value proposition so that you will become a paid member.

[Tony Polak:]

Is there -- do you have a set rate? Is it a graduated rate? Is it discounted if you sign up for more than one year?

[Jim Kirsch:]

Matt, do you want to address that?

[Matt Proman:]

Right now all the membership programs that we have, which are six, are all annual. In the past, I've experimented with two-year, three-year, five-year memberships. There were some issues with that in trying to justify what your costs are and what the value is over five years and how to recognize the actual revenue. So we've been just putting annual membership 12 months together right now. When I did roll out three-year and five-year, there was -- we did see an increase in sales, but there was a lot of downside from accounting standpoint and that's why we decided to go back to all annual memberships.

[Tony Polak:]

Is there a cyclicality in quarter-by-quarter on post businesses?

[Jim Kirsch:]

The PDN business is heavily weighted towards the fourth quarter, the recruitment side of the business, and the NAPW membership business is more consistent throughout the year.

[Operator:]

There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

[Jim Kirsch:]

Thank you very much, operator. Again, I want to thank everyone for participating on our call today. On behalf of our entire Company, I want to express to you our true excitement about the future success of our Company. Our product line is growing with very high margins. Our total addressable market in both recruitment revenue and NAPW membership services is vast. We will continue to focus on cost savings, efficiencies, high margin product lines and growth in the coming quarters and years. Finally, our management team is available to all interested parties for one-on-one discussions if you would like to ask any additional questions after the call. Thank you once again and have a nice evening.

[Operator:]

This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a great day.