QuoteMedia, Inc.
Q3 2023 Earnings Call Transcript

Published: 14 Nov 2023

[Operator:]

Good day, everyone, and welcome to today's QuoteMedia Q3 results.

[[Operator Instructions]:]

[Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. Brendan Hopkins.:]

[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 in 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're pleased to announce that we achieved an 8% increase in revenue in Q3 over Q3 of last year. And if we do a 4x neutral comparison and remove the impact of the decline in the Canadian dollar, that would put our true comparable at an increase of 10% for the quarter.

[In the last quarter, Quotestream revenue increased by 1%, while our data and content product line increased by 16%, and this doesn't include our deferred revenue growth. In the last quarter, deferred revenue increased by 76%. And this is a result of client implementation setup and development fees, and that has to be recognized in future quarters.:]

[We're quite pleased to see that we have now crossed the $2 million mark in deferred revenue. A few weeks ago, I did some traveling, and I met with quite a few large firms in the banking and brokerage industries, the interest in QuoteMedia and our products and capabilities were unbelievable. It was exciting to hear that many very large firms are interested in what QuoteMedia can do to help them. And this showed me that we're on track with our product lines, our data and our overall vision. It also showed me that we could be very busy in 2024.:]

[I will now pass the mic to Keith Randall, so he can take us through the numbers for the quarter and then we can answer any questions that you may have.:]

[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 an 8% increase in total revenue for the quarter. As Dave mentioned, on an FX-neutral basis, our revenue growth was 10% as our revenue was negatively impacted by the recent decline of the Canadian dollar. Documenting revenue growth on an FX-neutral basis translates our Canadian dollar revenue at the average exchange rate of the comparative period.

[In general, our new products continue to gain traction in the market, which has allowed us to attract some of the larger customers we recently signed. Breaking down our revenue. Most of our revenue growth was from our interactive content revenue, which is web display content, which increased 16% due to larger contracts we've recently signed.:]

[Our total Quotestream revenue increased by 1% due to a 4% increase in corporate Quotestream revenue resulting from increases in both the number of corporate customers and the average revenue per customer. This was offset by our individual Quotestream revenue, which decreased by 10%. This was due to a decrease in subscribers and the decline of the Canadian dollar, it was approximately 50% of our individual Quotestream revenues are in Canadian dollars.:]

[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 52%, unchanged from the comparative period. Our total operating expenses increased 13% during 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 decreased by 9%. This is primarily due to a nonrecurring expense item incurred in the comparative period. Development expenses increased 33% due to additional personnel hired since the comparative period. G&A expenses increased 22%, primarily due to additional professional fees resulting from a change of our principal accounts as well as an increase in bad debt expenses.:]

[Our net income for the quarter was $126,000 compared to $310,000 in the comparative period. The decrease of $184,000 was mainly due to a onetime $150,000 adjustment to our bad debt allowance during the quarter. We expect our net income to improve for the remainder of the year as costs normalize. Our adjusted EBITDA was $720,000 compared to $670,000 in the prior period, an improvement of $50,000. 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 $821,000 at quarter end, which was a $343,000 increase from our year-end cash balance of $478,000. Our deferred revenue totaled over $2 million at quarter end, an increase of almost $900,000 since year-end. The future costs associated with realizing that revenue are minimal as the majority of our deferred revenue relates to setup a 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 $2.8 million, while net cash used in investing activities was $2.5 million, primarily due to spending on infrastructure and product development. Thank you. And now I'll pass it back to Dave.:]

[David Shworan:]

Thank you, Keith. So, we're now happy to open up the call for any questions that you have. And if you have any future questions after this call, please feel free to reach out to Brendan Hopkins and his e-mail address is [e-mail]. So, we can answer any questions now.

[Operator:]

[Operator Instructions]

[We will now take a question from [ Sloan Hatfield ].:]

[Unknown Analyst:]

I was curious if you had any idea approximately what portion of your existing client base didn't already have a financial data service provider? And so QuoteMedia was the first versus what portion of your clients had to drop an existing service provider to switch to QuoteMedia?

[David Shworan:]

Well, that's a tricky question. I don't know if we have statistics of brand-new data needing clients. But I mean, there are quite a few start-up clients that have come to us, and they're starting some kind of a project and they need data. I think there's a lot of -- like our bigger clients, they're all -- they've been around for 10, 20, 30, 40 years. So they probably -- most of them have had other data providers and we've been replacing.

[So all the big ones, I think, are replacing and then maybe some little ones are new.:]

[Unknown Analyst:]

And then another question, if I could, please, about what period of time on average does it take to onboard a new client? Maybe starting with a smaller customer that maybe didn't already have an existing service provider on the short end of this time range. And then on the longer side, a bigger client that already has a service provider that has to switch out one for another?

[David Shworan:]

It all depends on the size of the integration, the amount of work to be done, how big the project is, how big the company is. I mean some -- the larger firms probably take 6 months to even get the paperwork completed. And then depending on the size of the project could take rollout of up to a year, maybe quarterly rollout of product to complete.

[A smaller one would be -- could be weeks and even like a month to go live. So it really depends. It's all data integration, how much custom construction has to be done? How much integration into their trading system has to be done? Do we have to write to their APIs? Do we have to bring in any other data for them, et cetera, et cetera?:]

[So it's very complex. It's not an easy business, obviously. But most of the smaller things because we have so many widgets and tools for easy display of data, easy customization. We've got data request calls that people can just be entitled to and they can just use data very quickly. We've got a lot of companies that go live in a month kind of thing.:]

[But the big ones where we have to do complete integrated trading into our Quotestream web application and complex options and on and on and on that can take months and months, sometimes 6 months to 9 months to do a full integration.:]

[Unknown Analyst:]

That's helpful. And then maybe one more, if I could. When I'm looking at trying to find QuoteMedia's peer set and competitors coming across these gigantic names like Capital IQ, FactSet, Bloomberg. So is QuoteMedia kind of the smallest of its kind? Or are there many other players out there that do some or all of what QuoteMedia does that are probably private that I've never heard of?

[David Shworan:]

Yes. Most of our competitors are those big giants that you're talking about, the multibillion-dollar companies that have been in this space for a long time. And yes, so we are the smallest of the group. There are little companies that do small pieces of things, but they're in no way competitive to what we're doing because we're so broad as far as data coverage, as far as data ownership, as far as all the product lines that we offer. And often, we have a company that comes to us and they want a lot of different products.

[They want the web solutions, they want custom work, they want terminals for all the advisers, for example, there's so many things that we're doing that are competing against those big ones. So yes, I would say that we're probably the smallest in the competitive space.:]

[Operator:]

[Operator Instructions]

[It appears that we have no further questions at this time. I will now turn the program back over to -- I just misspoke. I will go ahead and open the line to [indiscernible].:]

[Unknown Analyst:]

The one question regarding the growth. I think this is decent growth, 8% year-over-year. If I'm not wrong, I think on the last call or earlier, you mentioned the growth accelerating during the second half of the year. Is there -- is that in the deferred revenue that growth has gone? Or how do we accelerate the growth going forward?

[David Shworan:]

Yes. Well, certainly, our deferred revenue has kind of gone through the roof, and that's because of a lot of the implementation and setup and all the big developments that we've done that unfortunately, have to spread out over a term of a contract, which is up to 5 years. So that gets spread out, but it's -- it is revenue. It is -- we did close the deal and bring in all the money. And sometimes you put a lot into that when you're billing a client for all the work to integrate and go live so that we put the money in the bank instead of taking it too much over time, but you can't book it that way.

[But yes, I mean it's -- we're in a business that goes up and down. There's -- it takes time to close big deals, sometimes -- like that's why it's very hard for us to do projections because we don't know when a deal is going to close or how many are going to close and the size of them.:]

[Like I said in my little speech there, I just was traveling and hit the road and met with a lot of big, big firms. And the excitement after all that time of meeting with these companies and having them say, yes, we want to look at what QuoteMedia can do for us. We're not happy. We're using some of these big firms that you're talking about, and we don't like them. We don't like the service. We don't like their fees. We don't like everything that's going on. It's time for us to change gears.:]

[And so I mean, I'm excited about where we're going, and I'm excited about what's happening and we're just hoping that we can show it in obviously, revenue growth. And so hopefully, we just keep climbing. And sometimes you get the odd client that -- we had one that got acquired, and so they didn't need data anymore. We had some that decreased their exchange fees because they wanted to spend less. I mean, it's an interesting world.:]

[We had another company that actually shut down a division and didn't need data there. So there's going to be fluctuations up and down, but we're still projecting obviously good growth and a good future.:]

[Unknown Analyst:]

Got it. Based on these recent conversations on your recent tour and what you have in the pipeline, do you -- how do you expect the growth to be in line next year and the remainder of the year? Or you expect it to accelerate?

[David Shworan:]

Well, we expect it to be in line and then the acceleration is when do the bigger ones come in and close. So there's quite a few that are in discussions. And the question is how soon can we get it papered, how soon can we get a full agreement. And so that's where it gets tricky. Is it -- do we get stuff happening in Q1 and Q2? That type of thing. So I mean, I think just clients under contract, even just what we've closed this year is growth for next year already.

[Unknown Analyst:]

Got it. Okay. Great. And when I compare QuoteMedia to, let's say, our competition and what they were when these companies were smaller, just comparing like, let's say, to a company like FactSet.

[At this stage, it was for them, the growth was really a matter of how much data set they cover, what data they can provide, is QuoteMedia at the same stage?:]

[I mean, I think you are broader in terms of the client base, you cater to. It's not just brokerage, it's not just investment management. It's not just investment banking. It's all of that.:]

[But am I thinking about it the right way that the growth is really dependent on the data set that you cover? And as you increase that data and that's kind of where the development efforts are going towards to increase that data set, to increase the number of countries and the list and all that you provide?:]

[David Shworan:]

Yes. I mean it's -- I think that we've already achieved a very, very high level of data across the board. We're very North American-focused with a secondary focus of some international markets. But as far as North America goes, we are incredibly solid with data sets, the requirements and many years ago, people would say, what's your goal, Dave? And I would say, well, the goal is when a big company comes to us and they provide us a sheet -- a check sheet of everything that they need from a market data company, I want to make sure we can put a check on everything.

[And we have achieved that. And that's why we are closing all of these deals, and that's why these big firms are now coming to us. We do have what they need. We do have the data sets. And we have proprietary data, a lot of proprietary data now from QuoteMedia. Whereas in the early days, we used third parties for a lot of data. Now we are -- we own it, we run it, we manage it, we can do whatever we want with it.:]

[So it's -- we're a different company than when we started, obviously and we can compete. Whereas there are other companies out there that try to compete with us maybe for data, but they're just reselling, FactSet, or they're reselling data from another company. And so it's really -- it's not the same. QuoteMedia is not doing that. We're really going to market with our own stuff.:]

[Unknown Analyst:]

Great. And then one last one. A lot of the cash, most of it, the cash generated by the company is going towards the product development. So anything you could share on that front as to -- is there any product -- new product or product enhancement?

[Or is it just mostly the integrations that you're doing for these larger clients under contract?:]

[David Shworan:]

No. It's -- there's a lot of new products. We're always building new product, new display solutions, new charting systems, new terminal applications, new mobile content. So yes, there's so much. That's why companies come to QuoteMedia because we are evolving. We are producing new product all the time where our stuff is new.

[And that's one of the complaints that I hear out there is that most companies, when they deal with the bigger antiquated companies are -- they're not moving forward. Their products are old. They're the same. They don't change. They cost a fortune to do anything. And whereas we're very agile, we've got newer products, we've got mobile-friendly products. We've got -- we're always trying to improve and stay in the times. So yes, we're developing all the time for our clients and for ourselves.:]

[Operator:]

It appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

[David Shworan:]

Well, thank you so much, everybody. I won't take everybody's time now. But thanks for coming and joining us on the call. And if you have any future questions, please feel free to reach out to Brendan Hopkins, [e-mail]. Thanks, everybody. Have a great day.

[Operator:]

This does conclude today's program. Thank you for your participation. You may disconnect at any time.