Paltalk, Inc.
Q1 2022 Earnings Call Transcript

Published: 15 May 2022

[Operator:]

Good afternoon and welcome to the Paltalk First Quarter 2022 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Jason Katz, Chief Executive Officer of Paltalk and Kara Jenny, Chief Financial Officer of Paltalk. Kara, the floor is yours.

[Kara Jenny:]

Hello, everyone and welcome to the Paltalk first quarter 2022 operating and financial results conference call for the 3 months ended March 31, 2022. By now, everyone should have access to the earnings results press release, which was issued earlier today after the market closed at 4

[Jason Katz:]

Thank you, Kara and good afternoon everyone. We greatly appreciate you taking the time to join us on today’s call. We will discuss our operating highlights and financial results for the first quarter ended March 31, 2022. Additionally, we will provide some color on our growth initiatives, including our ramp up in marketing spend and plan for strategic accretive acquisitions. After my opening statement, our CFO, Kara Jenny, will give a summary of our first quarter ended March 31, 2022 financial results. Following our prepared remarks, we will move into the Q&A portion and answer questions that were pre-submitted prior to this call. With that, I would like to now walk you through the recent highlights. While we are disappointed with the decline in subscription revenue over the last quarter, we attribute this decrease primarily to the easing of COVID-19 restrictions in certain of our target markets. We believe we have started to lay the groundwork for growth in subscription and advertising revenue. As previously disclosed, we recently began to execute our plan to increase marketing spend and invest in product development. For example, in addition to our recent marketing initiatives, we launched a mobile backgammon game, which is interactive with real-time voice and video. Our cash balance of more than $20 million affords us the opportunity to make these investments, but we will proceed conservatively. Our measured approach is reflected in our first quarter’s increased marketing expenses of $200,000 and increased product development expenses of $200,000. We are optimistic that our new marketing tools and partnerships, with a focus on increasing visibility, user engagement and subscribers, will enable us to return to growth. In addition, our team continues to identify and review potential strategic acquisitions to bolster our growth even further. We look forward to updating the market and our stockholders with our progress on both internal growth initiatives and potential strategic accretive acquisitions. I will now provide some further insights into some of the specific growth initiatives and marketing spend we have recently started. During the first quarter, we engaged and started working with yellowHEAD, an AI-powered performance marketing company that boosts growth with unified paid and organic strategies, to lead our increased marketing efforts for Camfrog. yellowHEAD specializes in user acquisition, app store optimization, search engine optimization, creative production and analytics technology. yellowHEAD’s ASO and SEO solutions have been instrumental in helping many brands increase their traffic, conversion and users. One of the specific uses of the proceeds from the October 2021 capital raised last year is to carefully ramp up our marketing spend to help contribute to growth in users and revenue. Also during the first quarter, we partnered and started working with NoGood, a growth marketing firm that specializes in user acquisition, to accelerate user acquisition for our flagship Paltalk application. yellowHEAD’s expertise in SEO, content marketing, SEM, PPC, social labs, CRO, e-mail marketing, video marketing, SMS marketing and performance branding. NoGood has been instrumental in helping many start-ups and scale-ups to dramatically increase their traffic conversion and users. We are very excited to work with NoGood to help us as we seek to accelerate user growth and revenue growth. Because both of these marketing initiatives are in their early stages, it’s too soon to report any meaningful traction of data. We are carefully monitoring the results of our market initiatives and tweaking our plan for optimization and decision-making going forward. On the product development side, we are excited about the recent launch of our mobile backgammon game, which enables Paltalk users to play with friends, other users or privately with real-time voice and video. As part of our organic growth plan to increase subscribers, advertising and revenue, we believe that providing additional interactive offerings and content on our platform, such as mobile backgammon, will lead to increased user engagement. We believe that existing subscribers may introduce mobile games to potential new subscribers as well. Our recent release of mobile backgammon demonstrates our ability to develop additional applications and content, to offer our subscribers and utilizing our real-time voice and video capabilities. We’re always looking to increase our subscribers’ usage within our platform and expect to release a third mobile game as we further build out our offering of our mind games. In addition to these organic growth efforts, we continue to identify and analyze potential strategic accretive acquisitions of both businesses and assets. Our team continues to explore opportunities that could be accretive and complementary to our existing business. As true with all of our growth initiatives, we will move prudently and carefully measure our incremental return on investment to help ensure any acquisition would result in enhancing our value and performance. I trust this gives you a sense of some of the company initiatives we recently implemented in order to increase our subscribers and user engagement, and we expect to lead to increased revenue and profitability as we look to build stockholder value. Now I’d like to pass it off to Kara for a financial summary of our first quarter ended March 31, 2022.

[Kara Jenny:]

Thank you, Jason. Our results of operations for the 3 months ended March 31, 2022, were as follows. Revenue for the 3 months ended March 31, 2022 decreased by 13% to $2.9 million compared to $3.4 million for the 3 months ended March 31, 2021. This decline was primarily attributable to a decrease in technology service revenue as a result of the termination of our partnership with Open Props Inc., formerly YouNow, as well as a decrease in subscription revenue of 9.3% or approximately $300,000, which was primarily attributable to the easing of COVID-19 restrictions in certain of our target markets. Advertising revenue increased 4.6% to approximately $100,000. Loss from operations for the 3 months ended March 31, 2022, totaled approximately $700,000, an increase of $1.1 million compared to operating income of approximately $400,000 for the 3 months ended March 31, 2021. The decrease is primarily due to the decrease in subscription revenue of approximately $300,000, coupled with increased marketing expenses of approximately $200,000 or 60% in connection with our investment in marketing, increased product development expenses of approximately $200,000 or 18% in connection with implementation of newly purchased software included in other income for the 3 months ended March 31, 2021, with one-time charge of approximately $0.5 million related to the forgiveness of the proceeds from the Paycheck Protection Program loan the company received in 2020. The resulting net loss per share of common stock for the 3 months ended March 31, 2022, was a loss of $0.08 per share as compared to net income per share per common stock of $0.13 for the 3 months ended March 31, 2021. Adjusted EBITDA for the 3 months ended March 31, 2022, decreased by approximately $1 million to approximately $0.5 million loss compared to adjusted EBITDA of positive $0.5 million for the 3 months ended March 31, 2021. Cash and cash equivalents totaled $20.4 million at March 31, 2022, a decrease of $1.2 million compared to $21.6 million at December 31, 2021. Currently, the company has no long-term debt on its balance sheet. We will now move on to the questions that were previously submitted.

[A - Kara Jenny:]

The first question, how are yellowHEAD and NoGood performing versus your previous expectations, Jason?

[Jason Katz:]

yellowHEAD and NoGood both just started to implement their strategies at the beginning of the second quarter. So, there is not enough data yet to report on.

[Kara Jenny:]

The next question, is there any color you can provide on the impact of Hive Automated Content Moderation Solutions, your new message board feed and newly revised reward point system?

[Jason Katz:]

Sure. The Hive solution screens very large numbers of photos, videos and real-time video with excellent accuracy, which gives us confidence that users are enjoying our software within the terms of service. As for the feeds and reward point systems, we are constantly working on both of them and we will continue to improve each of them with every update.

[Kara Jenny:]

And the final question we received, in regards to M&A, are there any investment bankers assisting you with your search or are you doing it all internally? Should we expect something by year end? Are you in discussions or negotiations for anything yet?

[Jason Katz:]

Well, we cannot comment specifically about that, but we have been working very hard to find suitable acquisitions. As we have stated previously, making an accretive acquisition is a clear goal for 2022.

[Kara Jenny:]

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

[Jason Katz:]

Thanks everyone for your support and for joining us today. We are very grateful for your interest in our business. We look forward to updating the market and our stockholders with our progress on our growth initiatives organically and potential strategic accretive acquisitions, which we continue to identify and analyze. We plan on having our next quarterly results call in mid-August. Have a great day.