QuoteMedia, Inc.
Q1 2024 Earnings Call Transcript

Published: 14 May 2024

[Operator:]

Good afternoon, everyone. Welcome to today's QuoteMedia Q1 Financial Results Conference Call. [Operator Instructions]. 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.

[Brendan Hopkins:]

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 the 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 and future periods to differ materially from forecasted results. With that said, I would like to turn the call over to Dave Shworan, CEO of QuoteMedia.

[David Shworan:]

Thank you, Brendan. 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 breakeven quarter. So that was good. QuoteMedia 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 1 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 the 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 is going really well at QuoteMedia. 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.:]

[Keith Randall:]

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 QuoteMedia, 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 QuoteStream revenue decreased by 3%. Corporate QuoteStream revenue decreased by 2% and Individual QuoteStream 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 was 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. Our gross margin percentage was 50%, a 1% decrease, which was primarily due to a decrease in revenue from the comparative quarter. 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 -- 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 liability. 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 accountants 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.:]

[Our net loss for the quarter was $28,000 compared to a net income of $113,000 in 2023. 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 setup and development fees have been deferred and will be recognized in future quarters over a service contract to which they relate. Our year-to-date net cash flow from operations was $728,000 while net cash used in investing activities was $825,000, primarily due to spending on infrastructure and product development. Thank you. And I'll now pass it back to Dave.:]

[David Shworan:]

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 Brendan Hopkins, that's [e-mail].

[Operator:]

[Operator Instructions] Gentlemen, nothing coming in at this time, [Operator Instructions]. And we'll take our first question this afternoon from Ankur Sagar.

[Unknown Analyst:]

Dave and Keith. Regarding the top line being flat, I would appreciate if you could please elaborate and explain a little bit more as to what number of clients did we actually lose this quarter? And I think you sell the solution to a varied base of clients. But if I were to ask you like what percentage of clients out of the total client base, I mean you have in this category, like new solutions, where you probably monitor the usage of your data or the products is not as it should be as compared to a high usage client base?

[David Shworan:]

I'm not sure I followed that last point. Could you explain that a little bit?

[Unknown Analyst:]

So normally, a subscription company would monitor or track its product usage using some kind of analytics as to how the products are being used, are the products being used actively 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 didn't lead to I guess, any revenue for them, so they stopped the usage to -- so I mean what percent of your client base, you probably say it would fall in that category? Because I think it would make sense for us to monitor that sort of usage and client base, if we don't do it already.

[David Shworan:]

Yes. No, we -- yes, of course, we always track all of our clients, and we work with our clients. But 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 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 at the end of the -- 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 QuoteMedia. 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 yes, you kind of -- we run at 97% retention on clients. So only 3% leave us for one case or another. I have -- 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 with all the data and the exchanges and -- the 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 2 clients can see data.:]

[So they decrease their spend. And -- but we're working with them. They are 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 really -- it doesn't affect our bottom line at all because we still have our service. But 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 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 breakeven, a little bit under, but we'll pass that again. So it was just -- it just happened and it happened kind of all at once. That's all.:]

[Unknown Analyst:]

Got it. So in terms of this churn that we experienced, does this number include it all? Or is there more that happens in Q2? Or the number that you have right now in Q1 is the number inclusive of that?

[David Shworan:]

Yes. 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, 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 replace it and then you've got to grow above that. So yes, it happens. It just happened. It hit us pretty hard there. And since -- what did I say, 2016, is the last time that happened.

[Unknown Analyst:]

Yes. 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, Dave, what is your expectation? I don't know if you can comment something on it sequentially throughout the year? Based on the pipeline you have and would you expect to close or where it stands to, in terms of closing? And with this happening, how do you expect the top line to fare out going forward sequentially from here on?

[David Shworan:]

Well, 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? So sometimes you think, okay, that one is on the radar, it should close in the next 3 months, and it's going to be maybe 6 months, it's going to be maybe 9 months. So that's the difficulty. The smaller ones close and they come and go. We're always working on those, and those happen fairly quickly. But those are just our kind of our standard minimal growth. It's those big guys that come in and they take a long time. So a lot of that's happening. There are some really good ones that are in discussions and getting kind of going through, taking out incumbents, replacing 3 or 4 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 -- 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 just fingers crossed. Keep rolling.

[Unknown Analyst:]

Dave, in terms of, I mean we still continue to invest towards software development. Is it fair to say that you have some -- 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 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?

[David Shworan:]

Yes, 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 it's -- some of these are a 5-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 upfront to get started with them. For setup fees and things like that. And -- but that gets spread out over 5 years. And unfortunately, that's the deferred revenue. So yes, of course, that will hit the books, and that will look good. But it's -- some of them are long. And we want long-term clients. We want them to sign a 5-year deal. So there's good with the bad, right?

[Unknown Analyst:]

And then a couple of last ones. From a gross margin perspective, I think what you relayed in the last call was that QuoteMedia has built its own data sets to take out the third-party vendors, and that should help from a gross margin profitability standpoint. Do you expect those -- that to improve the gross margin going forward? Is it only a function of revenue growth? Or could you have, gross margin can become higher even with current revenue as it stands?

[David Shworan:]

No, it's about growth. It's about growth. Yes. because the deal -- 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, $1 million spend on a data set that's now ours that we own. That's $1 million profit, right? Because it's not costing us any more 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 yes, 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.

[Unknown Analyst:]

Got it. And I think you mentioned in your prepared remarks regarding new product launch. We'll probably have -- get to see some hopefully press releases on that. If you could 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 QuoteMedia, the QMFR, the QuoteMedia Fund Research -- in 2023. And if you could just share anything about what kind of new products that you're working on? And is this for existing clients? Or you still have to sign new clients for these products?

[David Shworan:]

So yes, 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.

[Unknown Analyst:]

Will these be branded products like off the shelf where anybody could use that product? Or is it more like a data set for...

[David Shworan:]

No, it's more product related, with all of our data running the systems, right? And then -- but yes, working with firms to produce what they're looking for. It's kind of our -- one of our biggest plans of attack over the last year. And it's all coming to fruition now, which is great. So we'll be putting it out. Certainly.

[Unknown Analyst:]

And one last one, Dave. I think there was a lot of buzz about the AI, which is really in a nutshell an intelligence based on data, media has spent the last few years building its own data set and owns a lot of own data now. If you could just share any stuff that you're working with AI, really harness intelligence from these data sets that you have built for your clients, that would be great.

[David Shworan:]

Yes. Yes. We've been at it probably longer than most, even before it hit the limelight and went crazy with ChatGPT and all that stuff. So 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 that's doing proprietary analytics algorithms and different things to bring out signals. And yes, I mean, there's a lot to it. So on the top of my head, I can't think of the words right now. But -- 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 yes, there's -- we meet on it almost every week. There's a lot ongoing there. And yes, it's something we've been doing over time for quite some time, actually.

[Operator:]

We'll take our next question now from Kenneth Ellis.

[Unknown Analyst:]

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, or where?

[David Shworan:]

Yes. We just finished a round of sales hiring, so that's complete. Yes, I don't think that we've got dramatic hiring in areas. We've -- we kind of have pretty well structured teams. We -- last year, we did hiring for our trading integration teams, because we had a bunch of more clients sign up for integrated trading into our QuoteStream products and things like that. But yes, I don't think we have a lot of -- I don't think we have like a surge of hiring to do. 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 a lot of people into the data collection and data aggregation, data cleansing, all of our proprietary stuff. So that's kind of the...

[Unknown Analyst:]

In order to reach, let's say, your bottom line by 10 million people -- by $10 million. What would you have to hire to do that?

[David Shworan:]

I think it's nominal hiring. I mean I don't think we need to go crazy, and it's -- yes. We've got a lot of -- what we've built is kind of fixed structure, we don't need a lot more people for everything. It'd be nice to have a little bit more redundancy, a little bit more people in certain areas. But I know what you're asking. Yes, you're asking, are we going to have to balloon our staff to match the revenue and the answer is No.

[Operator:]

And we have a question now from [ Collin Gilbert ].

[Unknown Shareholder:]

Dave, there's a number of 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 3 bagger and get us out of this and walk and say, "Well, we had a good run, and we're there now."

[David Shworan:]

Well, yes, I mean, everybody's got different plans and different goals, of course, right? The uplifting is always something that we're looking at. We always have to match -- have to hit the targets. Maybe cross-lifting is another thing that we're looking at. Basically, it's just -- yes, we're continuing to grow, continuing to close the deals and the clients and when the timing is right. And then I say it all the time. It's just the timing has got to be right, and everything's got to be perfect for us to make it happen. And so that's our goal.

[And right now, it's focus on growth, focus on business, focus on the -- where is 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. Just -- it's all good. Everything is going really well. It's just got to keep going, right? We 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.:]

[Unknown Shareholder:]

The stock doesn't trade, so it's very illiquid and...

[David Shworan:]

Exactly. So we have to try to solve that.

[Unknown Shareholder:]

Would be nice if you could solve it. 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.

[David Shworan:]

We did know -- yes, we did know about it.

[Unknown Shareholder:]

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?

[David Shworan:]

Yes. Of course, Yes. Yes, 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. So that's -- but of course, yes, we're forecasting growth, continuous growth.

[Operator:]

And gentlemen, it appears we have no further questions this afternoon. So that will bring us to the conclusion of today's QuoteMedia 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.