QuoteMedia, Inc.
Q3 2022 Earnings Call Transcript

Published: 10 Nov 2022

[Operator:]

Good day, ladies and gentlemen, and thank you all for joining us for this QuoteMedia 2022 Q3 Results Call. [Operator Instructions] Please note that this call is being recorded, and I will be standing by if you should need any assistance.

[It is now my pleasure to get us started with 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 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 or 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 David Shworan, CEO of QuoteMedia.:]

[David Shworan:]

Thanks, Brendan. Welcome, everybody, and thank you for joining us. We're pleased to announce that we have achieved a 15% increase in revenue in Q3 over Q3 of last year, and we're very happy with our growth this quarter. We did project that we would be a bit higher in the quarter, but the deviation of the Canadian dollar -- devaluation of the Canadian dollar, sorry, had an impact on our top line revenue. Unfortunately, the -- fortunately, this does not affect our bottom line as our Canadian dollar revenue and expenses are almost equal.

[In any case, we are growing faster than ever, and the announcements that we have closed major deals with 2 of Canada's largest banks certainly has been an eye-opener to the industry. Many more firms are now coming to us to discuss doing business with QuoteMedia.:]

[Q4 of this year and Q1 of next year are big rollout quarters for us. We will be releasing new data products, launching new trading integrations and taking some of these larger clients live. We're now head down for the rest of the year, working hard to meet all of our deadlines, and the pace of everything at QuoteMedia is certainly at a peak. This will be our best year, of course, but next year is already looking to be much better. We are very excited to see what the future holds.:]

[And 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 any questions that you may have.:]

[Keith Randall:]

Thanks, Dave, and welcome, everyone. I'll now start with the income statement. Note that all comparisons are on a year-over-year basis unless otherwise noted.

[Overall, we had another good quarter with a 15% increase in total revenue and a significant improvement in net income. 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, our total Quotestream revenue was relatively flat, decreasing by 1%. Corporate Quotestream revenue increased by 3%, primarily due to the larger customers recently signed. Our individual Quotestream revenue decreased by 10% due to a decrease in subscribers and the devaluation of the Canadian dollar as approximately 50% of our individual Quotestream revenue is earned in Canadian dollars.:]

[Interactive content revenue, which is web display content, increased 37%, mainly due to an increase in the size and number of our customer base and, in particular, the contracts signed with the large Canadian bank earlier this year.:]

[Our cost of revenue consists of fixed and variable stock exchange fees and other data costs. It also includes amortization of capitalized development costs, which accounted for the 3% increase in cost of revenue from the comparative quarter. Overall, our cost of revenue decreased as a percentage of sales, increasing our gross margin percentage to 52% from 47% in the comparative quarter. Improvement is mainly due to the higher gross margin associated with the contract signed with the large Canadian bank previously mentioned.:]

[Our total operating expenses increased 24% during the quarter. Most of the increase relates to improvements made to our infrastructure, security and business continuity management and, in particular, the costs associated with obtaining SOC2 Type 2 certification. SOC2 certification provides independent assurance that an organization maintains a high level of information security and has controls in place to assure business continuity. We are currently in the final stages of obtaining certification and expect to complete the process before year-end.:]

[Sales and marketing expenses increased 26%, and development expenses increased 32%, primarily due to additional personnel hired to achieve our expansion objectives. G&A expenses increased 16%, primarily due to increased personnel costs and software expenses related to the SOC2 certification process.:]

[Our net income for the quarter was $310,000 compared to $155,000 in the comparative quarter, an increase of $155,000. Our adjusted EBITDA was $670,000 compared to $540,000 in the comparative quarter, an improvement of $130,000. 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 $304,000 at quarter end, which was a $45,000 increase from year-end. Our net cash flow from operations was $2.2 million, while net cash used in investing activities was $2.1 million due to increased spending on infrastructure and product development.:]

[Looking forward, we anticipate 16% revenue growth for fiscal 2022. As Dave mentioned, the Canadian dollar has depreciated significantly versus the U.S. dollar since Q2, which has reduced our Canadian dollar revenue and translated into U.S. dollars. This does not impact our bottom line, however, as Canadian dollar revenue and expenses are evenly matched.:]

[Looking ahead to 2023, we expect to maintain our current revenue growth and significantly improve our bottom line. This is based on customers already under contract, including the recently finalized contract with Bank of Montreal, which started in November.:]

[Thank you, and I'll now pass it back to Dave.:]

[David Shworan:]

Thanks, Keith. Okay. So I think we're now happy to open up the call for any questions you may have for this quarter.

[Operator:]

[Operator Instructions] And we have a question coming from the line of Michael Kupinski.

[Michael Kupinski:]

A couple of questions. How much did -- if you can just give us a sense of the number of subscribers, whether individual Quotestream and corporate Quotestream, what they have done. I know you mentioned that individual Quotestream customers declined, but can you kind of give us a sense of the degree of the decline? And then maybe talk a little bit about pricing. And has that been consistent? Or have you been discounting? Or just give us a sense of what that component has done.

[David Shworan:]

Keith, do you have any of those...

[Keith Randall:]

Yes, I can handle the individual Quotestream. I would say I don't have the numbers right at my fingertips. But I would say the subscribers decreased probably in the range of, say, 5%. And then the rest of the decrease was due to the exchange rate fluctuations.

[And can you repeat the second part of that?:]

[Michael Kupinski:]

Yes. I was just wondering in terms of the pricing. Has pricing been consistent? Or have you been discounting? Or can you give us a sense of what you're doing on the pricing?

[Keith Randall:]

Are you referring to individual Quotestream specifically or...

[Michael Kupinski:]

Specifically individual, yes.

[Keith Randall:]

We haven't been discounting our pricing. We're actually reviewing our pricing, so we may come up with new pricing going forward. But we haven't changed any of our pricing yet. But we're looking at our exchange fees and maybe -- because I think we're below the market in that area, so there might be some areas where we can increase our revenue in that area.

[Michael Kupinski:]

And Keith, if you were on a constant currency basis, what would have quarter been and what would have been your guide? Would you hit your 20% growth target on the basis of what you have in terms of currency exchange?

[Keith Randall:]

Yes, we would have been probably around 19%, I want to say, 18%, 19%. We had another customer who significantly reduced their exchange fees, but they were just -- they were passed through exchange fees. So it really didn't impact our bottom line. So that accounted for a part, maybe not 1%, but 0.5% maybe. So those 2 factors combined basically accounted for the difference of what we expected versus what we actually incurred.

[Michael Kupinski:]

Got you. How much of your total revenues are derived from Canadian sources?

[Keith Randall:]

It's about 1/3.

[Michael Kupinski:]

Okay.

[Keith Randall:]

And then that might go up a little bit in the future with some of the new contracts we've signed.

[Michael Kupinski:]

And the new contracts that you just recently signed are -- if I heard you correctly, you believe that they'll start making contribution in the first quarter. Or is it more a second quarter event?

[Keith Randall:]

The Bank of Montreal starts in November. So...

[Michael Kupinski:]

Okay. But in terms of profit contributions because there's a little bit of a ramp, right? Or do you anticipate...

[Keith Randall:]

No, this is -- well, I mean, potentially, there could be a ramp, but it's a fixed contract with potential for more above certain minimums.

[Michael Kupinski:]

Got you. And then if you can kind of give us a sense -- you had mentioned that you expect margin improvement in 2023. What -- can you kind of give us a sense of what type of margin improvement you're expecting as you cycle into 2023? And hopefully, I assume that you're still anticipating to see 20% plus revenue growth. And I assume that you're going to get some margin benefit from just increasing size, but can you give us a sense of what you're anticipating margins to be?

[Keith Randall:]

I'm looking at about 52% and then -- in '23 and improvement in probably 53% in '24. And then the revenue, I think we're going to be in that -- the 15% to 20%. It's somewhat dependent on the currency as well. So some of that's out of our control. Even though it doesn't really impact our bottom line, it's just...

[Michael Kupinski:]

Aside from the one account that you've mentioned that you've saw the reduction in exchange fees. Are you seeing anything related to this in economic headwinds that were basically are inflation and prospect of a weakening economy, that sort of thing that you're seeing in terms of affecting any of your customers at this point? I know in the past, Dave, you had mentioned that you feel like tough times would actually be a good thing for QuoteMedia because then people who might be looking for cheaper alternatives and choose you. And so I was just wondering what your sense of the current environment and how that's playing out for you.

[David Shworan:]

Yes. No, that's exactly right. So -- yes, I can comment on that, Keith. So -- because I'm talking to clients and going through all of this on a daily basis. And sure enough, with the economy and everything going rougher, they're always looking to -- at their spend. And so this -- as Keith is saying about where companies are reducing their exchange fees, that means they're showing a lower level of real-time data maybe or a different exchange that's less, that has a lower exchange fee.

[So there's more of that in discussion, trying to bring their costs down, but there's more companies coming to us to save money. So the -- our net revenue is fine. The growth is kind of -- an exchange fee if we're -- if the company is spending $1,000 on exchange fee and they lower that to $500, that's all just flow through. So it doesn't really -- it doesn't affect our bottom line, but our top line might fluctuate because of that, but the bottom line doesn't. But a lot -- many companies are coming to us to save money. And that's -- these 2 recent deals were also because of that.:]

[Keith Randall:]

And I was going to add -- sorry, I was just going to add that we haven't seen any uptick in cancellations or anything of that nature.

[Michael Kupinski:]

Got you. Got you. And then the big issues are that -- how big is BMO? I mean can you give us a sense of what the revenue contribution might be from them?

[David Shworan:]

No, I don't think we can disclose that, unfortunately.

[Michael Kupinski:]

Okay. And then if you can kind of give us a sense of -- you're saying that cancellations are not -- have not increased. So with the 15% to 20% growth next year, you've obviously cycled through now one more of the larger accounts and now with the BMO investor, what is baked into that 15% to 20% growth? Is it you're anticipating yet another client win? Or is it just based on the current client wins that you have? I'm just trying to understand what -- how -- what -- in terms of that guide, what's baked in and what's not baked in?

[Keith Randall:]

Well, we had not just BMO, we've had other significant clients start with us or significant contracts start with us in the fourth quarter of this year. So that will carry forward. So I mean I have factored in additional revenue growth. But nothing -- no significantly large contracts like the contracts that we signed this year. So if we were to land a really large contract, like another Canadian bank for instance, then yes, we would exceed our current guidance.

[Michael Kupinski:]

Got it. And then can you just give me an update on the number of salespeople that you have? I know that you were in a hiring mode and trying to hire additional people? Can you give me a sense of where you are today? And then in terms of what your hiring plans might be?

[Keith Randall:]

I don't really have the figures -- sorry, I don't have the figures are in front of me. Dave, maybe you can speak to our hiring plans.

[David Shworan:]

Yes. I mean the -- I think that we've had nominal hiring in the sales area or I think we still have maybe 10 salespeople. I think some of the hiring was actually done on the technical side because of having a lot of workload to do for these bigger clients that was very specific and making sure that we hit tight deadlines. But yes, we haven't -- I don't think that there's been a lot of sales hiring, but I think that's kind of one of our focuses for the next year. So have to keep you posted on that one.

[Operator:]

[Operator Instructions] Well, gentlemen, we have no signals from the phone. So I'll turn it back to you for any additional or closing remarks you have.

[David Shworan:]

Okay. Thank you so much. Thanks, everybody, for joining us on this call. If you have any further questions, please feel free to reach out to Brendan Hopkins. His e-mail address is [e-mail]. And we'll -- we're looking forward to the rest of this year and a successful next year. So thank you for joining the call. Goodbye, everybody.

[Operator:]

This does conclude today's conference. We thank you all for joining. You may now disconnect your lines.