Logiq, Inc.
Q2 2022 Earnings Call Transcript

Published: 12 Aug 2022

[Operator:]

Good morning, and thank you for joining us today to discuss the results for Logiq second quarter 2022 ended June 30, 2022. Joining us today are Logiq's Chief Executive Officer, Brent Suen; and Chief Operating Officer, John MacNeil. Following their prepared remarks, we'll open the call to your questions.

[I'll provide some important cautions regarding forward-looking statements made by management during today's call. I'll also remind everyone that today's call is being recorded, and it will be made available for telephone replay following the instructions provided in today's press release.:]

[At this time, while a few more listeners still dialing in, I will read the obligatory safe harbor statement. This teleconference contains certain forward-looking statements and information as defined within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and is subject to the safe harbor created by those sections.:]

[This teleconference may also contain forward-looking statements and forward-looking information within the meaning of Canadian securities legislation that relate to Logiq's current expectations and views of future events. Any statements that express or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance often, but not always through the use of words or phrases such as will likely result, are expected to, expect, will continue, is anticipated, anticipates, believes, estimated, intends, plans, forecasts, projections, strategy, objectives and outlook are not historical facts and may be forward-looking statements and may involve estimates, assumptions and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements.:]

[No assurance can be given that these expectations will prove to be correct, and such forward-looking statements included on this call should not be unduly relied upon. These statements speak only as of the date of this teleconference.:]

[Forward-looking statements are based on a number of assumptions and are subject to a number of risks and uncertainties, many of which are beyond Logiq's control, which could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking statements. In particular, and without limitations, this press release contains forward-looking statements regarding our products and services, the use and our ongoing demand for our products and services expectations regarding our revenue and the revenue generation potential of our products and services, our partnerships and strategic alliances, potential strategic transactions, the impact of global pandemics including COVID-19 and the demand for our products and services. Industry trends, overall market growth rates, our growth strategies, the continued growth of the addressable markets for our products and solutions, our business plans and strategies including without limitation our ability to successfully negotiate and finalize a purchase agreement governing the terms of such acquisition. The structure of the transaction, timing of the transaction and the value and success of the business after completion of the transaction, if any, and other risks described in the company's prior press releases and its filings within the Securities and Exchange Commission, SEC, including its annual report on Form 10-K and any subsequent public filings. And filings made pursuant to Canadian securities legislation that are available at www.sedar.com, including under the heading Risk Factors in the company's Canadian perspective.:]

[Logiq undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by law. New factors emerge from time to time, and it is not possible for Logiq to predict all of them or assess the impact of each such factor or to the extent of which any factor or combination of factors may cause results to differ materially from those contained in any forward-looking statements. Any forward-looking statements contained in this press release are expressly qualified in their entirety by this cautionary statement.:]

[Mr. Suen, the floor is yours.:]

[Brent Suen:]

Thanks, Kevin. Much appreciated. And thanks, everyone, for joining the call today. This morning, we published our second quarter 2022 earnings results, which can also be downloaded on our website, logiq.com.

[Over the next few minutes, I'm going to provide some commentary on the current state of our business and discuss strategy as we move forward through the second half of this year. And then I'll turn the call over to John MacNeil, our Chief Operating Officer, to discuss second quarter financial highlights and guidance for the year.:]

[Recently, we announced the successful spin-off of the GoLogiq business, in which we transformed the business into 2 standalone publicly traded companies. This was a strategic decision that we made as it enabled 2 distinct companies to now be focused with their attention and resources on 2 very compelling business models, which opportunistically add value and create enhanced returns for our shareholders.:]

[For the second quarter of 2022, we reported mixed results with revenues down compared to last year's second quarter. However, our business is in a transition phase as 2 weeks ago, we officially began operating without AppLogiq, which is now doing business as GoLogiq, and have also shifted away from lower-margin business.:]

[To clarify that a bit further, the lower-margin business to which I refer is largely what we call white-label business, which is picked up from advertising and marketing agencies and what we consider lower-hanging fruit for us. Previously, the margins for this business were sufficient to justify the expenditure of the company time and resources. However, as the entire field of digital advertising and marketing has become more crowded and more efficient technologically, we began seeing our margins gradually decline.:]

[At the same time, our expertise, experience and relationships around the industry have proven to be an asset. And to capitalize on that, we saw an opportunity to go after larger accounts and larger customers.:]

[So over the past year or so, after seeing GoLogiq's shift to higher-margin customers in its business successful, we decided to make the shift ourselves for DataLogiq in late 2021 as the GoLogiq spin-off was being contemplated.:]

[So back to the quarter's results. Despite the quarter's revenue decrease, I'm actually more optimistic about our organic revenue outlook than I have been in months prior as this is part of a broader vision, a long-term one that gets us quite excited about the future.:]

[We are pleased with the substantial margin expansion that we were able to accomplish with consolidated and segment gross margin growth. And this is the kind of operational actions that reinforce themselves. So as we get better at seeing how to increase prices while ensuring our customers earn a strong return on investment, we also learn much better where to reduce our cost of goods sold.:]

[At some point, of course, you run into a point of diminishing returns. And as we upgrade our digital technology and employ things like artificial intelligence and machine learning to help us do so, we believe we will continue to make gains here.:]

[As we noted in our first quarter report 3 months ago, quarterly revenue remains choppy as was reflected in the second quarter. However, our commitment to executing our strategy in pursuing higher-margin business is succeeding. In the meantime, third quarter revenue is beginning to ramp substantially, about which we expect to announce details in the coming weeks ahead, which will also look to strengthen our cash flow in quite a big way.:]

[That said, many entities are undertaking rightsizing. And we are also actively considering how to operate more efficiently as we have weathered a demand -- a downturn in our core lead generation business that shows sign of bottoming out and turning back upwards. So while we remain optimistic about the demand opportunities in front of us, we also remain committed to our goal reaching a breakeven EBITDA run rate by the end of this year. And we'll take the steps necessary to achieve this goal.:]

[Importantly, as mentioned earlier, we are in a transition phase in which we are shifting our resources to securing larger corporate customers, and this is part to capitalize on the Battle Bridge acquisition that was completed earlier this year. We determined that consolidating Battle Bridge into Logiq would offer the most profitable upside versus operating it as a wholly owned subsidiary.:]

[The consolidation of Battle Bridge and its team into Logiq, it has synergistically produced a company with a broader range of services and a much greater depth of expertise. That has enabled us to bid on and win far bigger customer accounts. And although those sales cycles are a little bit longer, we monitor our business pipeline closely. And today, we can confidently state that this strategy is gaining solid traction, and we fully expect to report strong progress about that in the weeks ahead.:]

[I actually had a very nice script, which was written by our Investor Relations team, and very much like the anecdotes and confidence-building language that was written into it for me. But I rewrote it.:]

[Last week, I had a conversation with someone who's under nondisclosure agreements with us, and I was describing the second quarter. And his comment to me was that sounds absolutely awful. I told him, you're right, it does. But that's purely on the view without full overall context.:]

[So I want to describe to you all the bigger picture, which I also did with him. When we acquired what is now our core business of DataLogiq back in January 2020, the business came out of a year where revenues were roughly around $8 million, and gross profit margins were a little bit below 10%. COVID hit, and in spite of that, 2020 revenues grew from $8 million up to $15.6 million and the margins went up to the low teens.:]

[Last year, that business grew to $24 million in revenue, and gross margins were a little bit under 30%. For this year, we're taking a more disruptive approach and have introduced a platform that, in simple terms, starts to ease out the middleman, which will, if successful, increase our profit margins substantially.:]

[Two of the initiatives, which has demonstrated profits that are in the 80% to 90% range, and as we get to scale, overall profit margins will improve to levels that are much greater than where we are now. We've been doing this for years. We've been resetting the business in the goal of attaining higher margins, and we have absolutely delivered on them. Then we've had the revenue track back upwards. So we believe that this time also we'll succeed again.:]

[So although the top line revenues for the second quarter did contract, the evolution of the business to a more direct approach is already demonstrating to us internally that the investment made this past year is on a solid footing and should reap great rewards, setting our business on a solid trajectory of revenue growth and margin expansion throughout the rest of this year and beyond.:]

[Now I'd like to turn the call over to John MacNeil to review the second quarter results and guidance for the year. John?:]

[John MacNeil:]

Thank you, Brent. For the second quarter, consolidated revenues in the quarter were $4.9 million, down 40.4% compared to $8.3 million in the prior year period. The company's CreateApp platform, now doing business as GoLogiq, contributed $1.6 million or 32% of second quarter consolidated revenues, down 42.6% from $2.8 million in the year-ago quarter. The decrease in revenues resulted from a shift to pursue higher gross profit margins, which involved attrition of lower-margin business and an increase of direct sales and marketing expenses.

[Logiq's DataLogiq platform revenues contributed $3.3 million or 67.4% of second quarter consolidated revenues, down 39.3% from $5.5 million in the year-ago quarter. Consolidated gross profits decreased 25.7% to $1.8 million on a 35.8% gross margin in Q2 2022 compared with $2.4 million or a 29.5% gross margin, respectively, in the year earlier quarter.:]

[Total operating expenses increased 5.7% to $8.3 million in Q2 2022 from $7.8 million in the year-ago quarter primarily due to an increase in general and administrative and sales and marketing expenses. The second quarter of 2022 net loss was $6.5 million, up from a net loss of $5 million in the year-ago quarter. As of June 30, 2022, the company's cash, cash equivalents and restricted cash totaled $0.4 million versus $1.6 million on December 31, 2021.:]

[Moving on to the full year 2022 guidance. We are reiterating our revenue guidance for fiscal 2022. We expect revenues to be in the range of $40 million to $50 million while we reach a breakeven EBITDA run rate by the end of fiscal year 2022 and expect to reach profitability in early 2023.:]

[This forecast is based in part on our prospective deal pipeline, which includes M&A and potential partnerships and strategic client relationships. We expressly do not make any assurance that we will enter into any strategic transactions with companies in the M&A pipeline or that the results of any such transactions will enable the company to reach its goals.:]

[With that, I will turn it back to the operator to open the lines for questions, please. Thank you.:]

[Operator:]

[Operator Instructions] And our first question comes from Lisa Thompson of Zacks Research.

[Lisa Thompson:]

So when are the filing going to be out so we can see the separate companies?

[Brent Suen:]

This afternoon or Monday morning.

[Lisa Thompson:]

Okay. So John, just to clarify the guidance. So when you say $40 million to $50 million run rate, that's just DataLogiq, and that's like Q4 times 4? Or is that December times 12? Or how do you get that number?

[John MacNeil:]

If I said run rate, I meant that the -- it was $40 million to $50 million in total, not the run rate. It is a combination of organic plus M&A that we've discussed earlier.

[Lisa Thompson:]

Okay. And that's the combined company, right? You add the 4 quarters or 2 quarters combined and 2 without -- with just DataLogiq? How does that work?

[John MacNeil:]

That is excluding AppLogiq, I think is what you're asking. That is excluding AppLogiq. Yes. It is excluding AppLogiq. So it is the DataLogiq segment plus M&A.

[Lisa Thompson:]

All right. So plus M&A, which may or may not happen?

[John MacNeil:]

Which may or may not happen.

[Lisa Thompson:]

Okay. All right. So that makes it confused. All right. Let me go through -- so just to clarify, what's the fully diluted share count right now?

[Brent Suen:]

33 million.

[Lisa Thompson:]

Okay. It's still pretty the same. So it looks like -- well, since I don't have the balance sheet for the separate company, but it looks like kind of out of cash. So what's the plan for that? Or do you think you'll get to cash breakeven?

[Brent Suen:]

I'd say probably the latter. There are some potential strategic investment opportunities that we're looking at but really to drive towards cost cutting and aiming towards breakeven and then profitability.

[Lisa Thompson:]

Okay. So the past -- go ahead.

[John MacNeil:]

No, I was just saying that we've entered into a factoring facility, which is helping on the working capital side, which helps on a cash flow perspective.

[Lisa Thompson:]

All right. So based on where you are now for Q3, what do you think operating expenses are for just DataLogiq?

[John MacNeil:]

You're saying on a go-forward basis or on a...

[Lisa Thompson:]

Yes, like Q3 now that they're separated?

[John MacNeil:]

Well, I think we can discuss that offline a bit, but I would say that the operating expenses, first of all, have a number of D&A items which you can pull out as well as stock-based compensation. That was $1.7 million in the current -- in the past -- excuse me, in the June quarter versus about $670,000 in the first quarter.

[And there have been some reductions subsequently in some of the business unit areas since we started. Rather than characterize that right here, I would -- we can take it offline a bit. But it will be lower from an operating expense perspective, I would say, by at least $50,000 or $100,000 per month.:]

[Lisa Thompson:]

All right. So that certainly gets you closer to that cash breakeven.

[John MacNeil:]

Yes.

[Lisa Thompson:]

All right. So can we just go through this whole Medicare thing and get specific as to how you used to do it and how you do it now? And then I know it's very seasonal. Is this quarter like double what the June quarter is in marketing for that business? Or how does that work?

[John MacNeil:]

Well, I believe the sign-up season begins in November 1. So you would expect to see some activity increase substantially leading into it. So it's a question of timing as to exactly when sort of from a demand side that will become a huge demand driver, but it will be a significant uplift in terms of volume in and around that. It isn't necessarily in this quarter. It could be earlier in the fourth quarter than in the third quarter, but it will be substantial.

[Brent Suen:]

Yes. And Lisa, I would -- I think it's safe to say that we're not looking at Medicare to be the primary driver for revenues through the balance of the year. It could be other verticals or potentially a new client or two.

[Lisa Thompson:]

Okay. How did you change the Medicare marketing though to go to the higher-margin thing? I didn't quite understand that Angie’s List thing.

[Brent Suen:]

It's not necessarily centered around Medicare. But generally, what we have created is a platform that John could probably describe better than I can. But essentially, what we're doing is we are -- we have built a direct-to-consumer platform so that a large percentage of the business that we're doing with third-party aggregators would be going direct. So capturing the higher margins by eliminating the middleman is the goal here.

[Does that make sense? So that would be anything from the insurance markets that we operate in to home improvement by way of having a direct portal, which has just recently launched -- I'm sorry, direct portals, plural, that have recently launched and starting to shift away from the business where we are dealing with people who are in the middle between us and the end customer. Does that make sense?:]

[Lisa Thompson:]

Okay. So that -- yes, so it's across all the verticals?

[Brent Suen:]

Correct. So looking a lot more like an Angie's List or Porch.com or I think SelectQuote, some of these who do go direct-to-consumer. There are initiatives that have been built -- invested in, built and implemented that will enable us to do the same.

[Lisa Thompson:]

All right. That makes sense. And I guess my last question is, if you do sign these large customers, would that be something you press release or not?

[Brent Suen:]

Depending upon the magnitude of them in materiality, yes. But if it's an existing client now that is layering in new business with us, perhaps not. I'm going to have to defer it to the counsel. But you'll see more going forward, and I think it will become a lot more evident. I'm not being -- I'm being deliberately vague only out of compliance concerns.

[Lisa Thompson:]

Right. I'm just wondering to expect it and if we don't hear from you that, that's...

[Brent Suen:]

Yes. Well, yes, we'll indicate it in one shape or form. But I will attempt to be a little more conservative about it, but I think it should be obvious what it is.

[Operator:]

Our next question comes from [ Bob Pablo ], a private investor.

[Unknown Attendee:]

I think Lisa asked one thing about your revenues. So my other question is, you've mentioned about the possibility of a DataLogiq spin-off. I was wondering if there is any progress on that or maybe considering maybe selling or merging the company of Logiq or DataLogiq with another company to maximize returns for shareholders? Do you have any progress about the possible IPO or spin-off or maybe a merger? And then can you discuss those at this time?

[Brent Suen:]

Thanks, Bob. Yes, we have absolutely described that those are initiatives that we are actively pursuing. As far as the progress on them, I can't be specific about it, but I can reiterate that it is absolutely in our interest to do so.

[I think that generally speaking, with the reset and valuations on tech companies over these past 9 months, which is -- I'm sorry, 8 months, which has started to tick up, there's been a lot of activity on the M&A front, a lot of people who we've spoken with and a lot of people who have approached us. So I think that the logical result will be a business combination or some sort of business combination that would be strategic in nature and should provide a greater upside. Does that help? .:]

[Operator:]

And our next question comes from [ Tony Fort ], a private investor.

[Unknown Attendee:]

Prior to my retirement from the American Stock Exchange, I was in charge of the trade analysis division. The division was involved in numerous investigations that involve interaction with the SEC.

[I report to Bill Brodsky who subsequently became Chairman of the CBOE, the Chicago Board Options Exchange. I dealt quite a bit with Arthur Levett, who was Chairman of the Exchange and later became SEC Chairman.:]

[I am sure that just about everyone on this call, along with all Logiq shareholders, are very concerned about the fact that Logiq has been in a major downward price spiral. Logiq closed yesterday at $0.2566, just a couple of cents above its all-time low. In fact, Logiq is down over 92% since it closed at $3.39 at the end of September 2021, which was over 10 months ago.:]

[The decline comes despite the fact that Brent and his staff have tirelessly built a much stronger company through acquisitions and partnerships, thereby resulting in record gross margins on its revenues. Logiq is currently trading at less than 1x current revenues, and its valuation is dramatically lower than all of its peers.:]

[This has happened for one reason. The shares are being manipulated on a daily basis. You only have to look at GoLogiq to confirm the manipulation. GoLogiq was spun off from DataLogiq. And it's currently trading at $3.70, although when it was spun off, it accounted for approximately 40% of the company's revenues with DataLogiq accounting for the rest.:]

[The daily manipulation resulted from the May 2021 offering of 2 million units of Logiq, which was handled by Research Capital Corporation. For some inexplicable reason, Research Capital placed close to 60% of the offering in the hands of 4 firms. The firms sold their 1.2 million common shares that they received and then exercised approximately 600,000 of the 1.2 million warrants and sold those shares.:]

[They made substantial profits on the sale of the 1.8 million shares. They were left with close to 600,000 unexercised warrants, which they held as protection against an unexpected news such as a tender offer.:]

[At that point, in early October 2021, they began their daily manipulation. The manipulation utilized computer-generated orders based on a developed algorithm. The 4 firms apparently acted in concert.:]

[On a daily basis, every single trading session, the computer buy orders either short or naked short, forcing Logiq down. The firms hope that shareholders panic and begin selling their shares. If there is no initial panic, they will sell shares themselves. And then they would expect shareholders to come in because the stock has had a significant decline.:]

[As the share price declines, the computer generates buy orders at or below the last sale in an effort to cover their short positions. This activity can be repeated multiple times during the trading session.:]

[The manipulating firms don't care 1 iota about Logiq, what they're doing to the company or the substantial losses suffered by shareholders. They are only concerned about making small profits during every trading session.:]

[Unfortunately, through this activity, the stock has had a monumental price decline. The majority of shareholders don't know what is going on with this manipulation. And they believe that there must be something wrong with the company since it is selling at such a dramatically low value in relation to all its peers.:]

[After the conference call in May, I sent the letter to Yvonne Huber at FINRA, outlining the continuous manipulation that's taken place in Logiq. In the past, I've had a number of conversations with Yvonne, and she knows me fairly well.:]

[After a couple of conversations with her chief investigator, I received an e-mail in June stating that FINRA had opened an investigation regarding the manipulation of the stock. As most of you might be aware, it normally takes considerable time for an investigation to be completed.:]

[However, once FINRA gets to a point when they ask the firms manipulating Logiq for their trading information, it is extremely doubtful that these firms will continue the manipulation. As most of you might know, the OTC market is a [ pragmier ] of manipulation. There are 10,000 stocks listed on the OTC market. And neither the SEC or FINRA have the manpower to investigate even a very small percentage of them.:]

[The firms engaging in the manipulation are totally aware that there is little or no oversight from their activity. I believe we were very fortunate that FINRA opened an investigation. The problem is that it might take a significant amount of time before it is completed.:]

[If you had time to listen to prior conference calls and Brent's numerous interviews, you would realize that he is doing everything humanly possible to stop the manipulation and place Logiq shareholders in a stronger financial position. I personally believe he will succeed.:]

[However, it is extremely important that in order for this constant manipulation to be successful, existing shareholders have to panic and sell their positions. Without shareholder selling, the firms manipulating Logiq would have to stop their activity because they wouldn't make any money.:]

[I hope that everyone listening to this call will discuss it with shareholders or friends that they know have positions and suggest they listen to the replay. If you would like to talk to me about this presentation, you can e-mail me at F-O-R-T-E 40 at verizon.net. I'd like to thank you for the opportunity to talk to you. And at this point, I would like to turn the call back to Brent.:]

[Brent Suen:]

Thanks, Tony. Much appreciated. Operator, are there any other questions?

[Operator:]

There are no further questions. Mr. Suen, we're back to you for closing remarks.

[Brent Suen:]

Okay. As mentioned earlier, I'm extremely confident in the solid foundation that we have invested in and built over the last year and firmly believe that we will be successful in our goals of scaling the business and attaining higher value for shareholders. I wanted to thank everyone for listening in, and look forward to the next call. Thanks so much.

[Operator:]

Ladies and gentlemen, that concludes today's conference call. We thank you all for your participation. You may now disconnect.