QuoteMedia, Inc.
Q1 2022 Earnings Call Transcript

Published: 13 May 2022

[Operator:]

Good day, everyone, and welcome to today's 2022 Q1 results. [Operator Instructions] Please note this call may be recorded.

[And it is now my pleasure to turn the call over to Brendan Hopkins. Please go ahead.:]

[Brendan Hopkins:]

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 safe harbor provisions of the Private Securities Litigation before 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'd like to turn the call over to Dave Shworan, CEO of QuoteMedia.:]

[David Shworan:]

Thanks, Brendan. Welcome, everybody, and thank you for joining us. We're pleased to announce that we achieved an 18% increase in revenue in Q1 over Q1 of last year, and we're very happy with our growth this quarter. We are expecting to maintain a great trajectory over the year with the accounts under contract that we'll be launching and ramping up over the course of the year, and we're certainly excited to see what additional clients we can close.

[Our interactive content solutions, our web display systems and our data APIs, along with our corporate Quotestream product lines, are showing very good traction. The release of new products and our proprietary new data sets to clients are also proving to be very successful. We're continuing to expand our Quotestream web trading application and connecting it to several client order management systems for release later this year.:]

[On the customer side, we recently announced that we closed one of the largest banks in Canada, and we're working through the paperwork on the second one now. We're definitely seeing many more large firms approaching us for proposals and price quotes, and we're displacing much larger incumbent data and application providers in the industry. In every case, the message is that they love our products, our pricing is fair, and they're hugely impressed by our -- the customer service we provide and the agility in responding to their needs. We have built a fantastic team at QuoteMedia, and we're very proud of what we are achieving.:]

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

[Keith Randall:]

Thank you, Dave, and welcome, everyone. I will 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 an 18% increase in total revenue and a profit of $105,000. Breaking down our revenue, our total Quotestream revenue grew by 13% driven by an 18% increase in corporate Quotestream revenue. The increase in corporate Quotestream revenue was primarily due to new contracts signed since the comparative quarter and an increase in the number of subscribers for existing customers. Our new products recently added continue to gain traction in the market, and we continue to add and improve the functionality of our existing products. This has allowed us to attract larger customers and increase the average revenue for our existing customers.:]

[Our individual Quotestream revenue decreased by 2%. There is an increase in total users, which could be attributed to new marketing efforts. But this increase was more than offset by a decrease in average revenue per subscriber, which can fluctuate, depending on the exchange data selected by our subscribers.:]

[Interactive content revenue, which is web display content, increased 25%, mainly due to an increase in the number of clients and an increase in the average revenue per client. In particular, the increase was due to the new contract we recently finalized with a large bank in Canada that Dave discussed earlier. Our cost of revenue consists of fixed and variable stock exchange fees and other data costs. It also includes amortization of capitalized development costs. Our cost of revenue increased 9%, mainly due to increased usage fees, resulting from increased sales volume. Vendor price increases in our ever-expanding data coverage also contributed to the increase in cost of revenue. Overall, the cost of revenue decreased as a percentage of sales as evidenced by our gross margin percentage and increased to 47% from 43% in the comparative quarter.:]

[The new contract discussed earlier accounted for the significant increase to our gross margin percentage because it has higher gross margins than our typical customer contracts have on average.:]

[Our total operating expenses increased 11% for the quarter. Most of the increase in operating costs relate to improvements made to our infrastructure, security and business continuity management.:]

[Improvements were necessary to broaden our product lines and data coverage. The increase is also related to costs associated with obtaining SOC2 Type 2 certification, which we expect to achieve this year. SOC2 Type 2 certification provides independent assurance that an organization maintains a high level of information security and data integrity and has controls in place to assure business continuity.:]

[Sales and marketing expenses increased 8%, and development expenses increased 15%, primarily due to additional personnel hired to achieve our expansion objectives. G&A expenses increased 11%, primarily due to an increase in personnel, costs and software expenses related to the SOC2 certification process.:]

[Net income for the quarter was $105,000 compared to $23,000 in the comparative quarter, an improvement of $182,000. Our operating profit increased to $189,000 from a loss of $111,000 in the comparative quarter, an improvement of $300,000. Finally, our adjusted EBITDA was $680,000 compared to $244,000 in the comparative quarter, an improvement of $436,000. 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 $396,000 at quarter end, which was $137,000 increase from year-end. Our net cash flow from operations was $757,000 while net cash used in investing activities was $620,000 due to increased spending on infrastructure and product development. If circumstances dictate, however, we have the flexibility to reduce development spending to maintain a strong balance sheet and liquidity position.:]

[Looking forward, based on contracts already under -- based on clients already on our contract or in the final stages of negotiations, we anticipate particularly strong revenue growth in the second half of the year, and we remain on track to achieve full year revenue growth of 20% or higher.:]

[In addition to the large contract discussed earlier, we signed a preliminary grant with another large bank in Canada to start development work while our contract is being finalized. Pursuant to that preliminary agreement, subsequent to quarter end, we received partial development payments totaling $230,000. We also expect to significantly improve on our bottom line for the year due to the higher gross margins of the new contracts recently signed. We also believe that our pending SOC2 certification will allow QuoteMedia to make even greater gains in market share as SOC2 certification is becoming a requirement for those providing services to larger financial institutions.:]

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

[David Shworan:]

Thank you, Keith. I'm happy to now open up the call for any questions. And if you have future questions after the call, please feel to reach out to Brendan Hopkins, which is [e-mail].

[Operator:]

[Operator Instructions] Our first question comes from Michael Kupinski.

[Michael Kupinski:]

A couple of questions. The new account that you recently signed, that was not in for the full quarter, right? I mean, could you just kind of tell us if that new contract if it was fully reflected in the quarter.

[David Shworan:]

No. The contract doesn't -- do you want to take -- I mean, I can give you a basic run through that. So there's development, and then there's launch, and there's partial launch as we move along. So as Keith said, things ramp up as the year progresses. But if you have more to add, Keith, go ahead.

[Keith Randall:]

Yes. No, that's what I was going to say.

[Michael Kupinski:]

Is there any way that you can kind of break out -- I don't know if this is a fair question, but break out for us how much the quarter was impacted by that new account?

[David Shworan:]

I can't really break it out right here on the spot, but I can probably provide that off-line.

[Michael Kupinski:]

I got you. And then in terms of this another big contract you mentioned, do you have a sense that the timing element of that, whether it would fall into 2022? Or would that be more of a 2023 situation? I know that you're saying that you're getting some development payments but just curious when -- if this contract is signed, when it would start to fall into the quarters.

[David Shworan:]

So typically, these take -- when they're this large, they take 6 to 9 months for development, that type of thing. So we're going to see launch probably in the -- at the end of the third quarter kind of thing. But there's still early launch and ramping up before that but then full bore would be fourth quarter and beyond.

[Michael Kupinski:]

And this -- your guidance in terms of the 20% for full year 2022 does not reflect that particular account, right? Or does that include some of the early launch and ramping up in your number?

[David Shworan:]

It includes the -- that contract starting in -- I believe I had it starting in November, but it might start earlier, I suppose. So I just wanted to be conservative. So -- and we recognize a small portion. We amortize the development fees over the life of the expected contracts. So you'll see a small impact starting in Q2, but that -- it won't be significant.

[Michael Kupinski:]

Got you. And just to clarify, that lease is baked into your guidance in terms of full year guidance and revenue. I just want to be clear.

[David Shworan:]

Correct.

[Michael Kupinski:]

Okay. And then one in terms of -- what would you -- David, what would you say would be the gating factor at this point in terms of accelerating your revenue growth even more? I mean, I know -- what do you think that the company needs to do? Do you think you need more sales reps? Or how would you kind of frame how investors should really look at the opportunity? Because it's such a large opportunity, what are the gating factors for you maybe to grow 30% or even 40% at this point?

[David Shworan:]

Yes. And hopefully, we will do that. The goal is to get actually in the door to more companies and talking to them at the right times, and that's the whole key. So I think adding more sales reps and also being able to travel more and getting to more on-site conferences and things like that. And I think you have to realize we did all of this without any of that, and that was actually -- pre-COVID, that was our goal. Our goal was to go to every conference, meet every firm and make sure that our name is in front. Because when they're not happy and they're looking at displacing and changing their data provider, they're changing their applications, changing to be more modern, you want to be that company that's there in their mind, right?

[And so yes, I think the other thing is that we're -- with these closes, it's a small industry as far as the upper echelon of people that communicate with each other. So I'm getting a lot of calls. People -- there's a lot of communication happening in the industry that QuoteMedia has moved up to this level, that there's firms that are closing and going with QuoteMedia, and it's very good to hear.:]

[And I think -- but to answer your question, I think some more salespeople, lots more conferences, lots more contacts with clients and potential clients is our goal on how to grow faster. We're actually doing super well as far as our product lines, our datasets, everything that we've developed over the last few years that we're taking to market now and we're taking to customers is -- the uptake is great. They're looking at it. They're looking to transition to it, leave other datasets that they're getting from other proprietary datasets from their providers and going with ours. So it's looking really good. It's -- yes, we just need to get our name out there even more.:]

[Michael Kupinski:]

Yes. And David, where -- how many sales reps do you have currently? And what are your plans for the year?

[David Shworan:]

We've got -- we don't have a lot. We probably have 7 or 8 sales reps, and then we've got the sales team behind them that help them. It's a bit of a different structure what we've created. But I think we need more -- some more people on the street, some more people in different cities. But also, we just -- it's not more necessarily more people, it's just being able to reach out more now and travel more and go to more conferences and things like that. We get in front of a lot of people when we go to these things, and it doesn't take -- it takes a handful of people to reach hundreds at that time.

[Michael Kupinski:]

Got you. And then gross profit margins were higher than expected, and they were certainly higher than they were in the fourth quarter. How -- is some of that related to the ramp? Is that higher-margin business? Or how should we think about gross margins for the balance of the year?

[Keith Randall:]

Sorry, go ahead, Dave.

[David Shworan:]

Well, I was just going to say, fortunately, the deals that we're doing with a lot of these firms is super high-margin deals. So in the past, we've done a lot of deals with companies where there was -- it was lower margin, which is fine. There's nothing wrong with that. But these bigger firms that are coming in, they're very high-margin deals, and so we're just going to see our margin increase dramatically as they go live. Go ahead, Keith.

[Keith Randall:]

Yes. No, that was basically the same. We anticipate the gross margins to improve during the year.

[Michael Kupinski:]

Do you think that would be close to 50%? Or is that too high? I mean, they're going to grow from the 47.5%?

[David Shworan:]

Yes. I've got it towards the end of the year, 49%, but we could hit 50%.

[Operator:]

[Operator Instructions] Our next question comes from [ Jonathan Jetmundsen ].

[Unknown Analyst:]

I just had 2 quick questions. One, kind of following up on the gross margin piece. You guys have spoken a lot of the best years about proprietary datasets you're building out. And I just want to see if you can give an update, a, in terms of how far along you are in that and your ability to provide kind of incremental high-value data to providers; and b, to the extent you've been able to replace your data providers with your own proprietary data, how -- has that had any material financial impact yet? And is it -- how do you expect that to kind of reduce cost of goods sold going forward?

[David Shworan:]

Yes. So there's lots of different datasets, and there's a proprietary data that we're creating that's our own which are new datasets. There's proprietary data that we're collecting from the industry going to

[[Audio Gap]:]

[and it's not like it's a slow process, but it does take time to get clients to move from one dataset to another dataset. It's not like they're exactly the same. They're different. There's different nuances. There's different things, so we're working through that with different clients as we transition them.:]

[And I think that probably over the course of the year, we'll wind everybody onto our own assets if we have proprietary instead of third party. But over the years, QuoteMedia was kind of data-agnostic. We might have had data from...:]

[Operator:]

And I do apologize, Dave, your line is breaking up. [Technical Difficulty]

[David Shworan:]

Okay. I'll try -- maybe it was just a glitch on the phone. I'll try to continue. So these -- with these datasets, we were data-agnostic in the past as we built up QuoteMedia, and we might have used third parties for different datasets, and then clients could choose which data they wanted. Over the years, we've developed our own datasets, collected our own direct data, went directly to all the sources, et cetera. We do our own news. We do our own market data. We do our own -- all data. So now the clients can go with our dataset and not third parties. And so over time, we have discontinued third-party datasets, and our plan is to continue to grow our

[[Audio Gap]:]

[all these different indicators for buy/sell indicators, all these different...:]

[Operator:]

I do apologize, Dave. You did cut out again for about another 5 seconds. Can we have you maybe try dialing back in?

[[Technical Difficulty]:]

[David Shworan:]

Yes. So anyway, I think I got most of my points across, I'm not sure what was missed or what wasn't. I don't know how much I want to repeat, but it was regarding data. We're transitioning clients. We're using our own datasets. We've got our proprietary datasets, and we are also going to discontinue some third parties as we continue. And I think over the course of the year, we're just going to have more and more transition to QuoteMedia, and so you should see decrease in costs and things like that probably as the year progresses even into the second year.

[Unknown Analyst:]

Okay. Great. Next question. So for some of these larger clients and to the extent you can share, how is the pricing structured? Is that -- are they playing you a flat fee for data culture, deployment, et cetera? Or is there any usage-based concept? Or as they roll this out to more and more of their respective customers, your revenue would increase?

[David Shworan:]

Yes. So I mean, there's always growth potential with larger firms. Usually, we try to kind of lock in a basic rate for all users kind of thing at the current level. But if the firm has more users or more usage, that's obviously -- fees increase, and that's pretty standard. So when we say ramp up or when clients ramp up, it might be because we've developed a certain level. We will turn on a set -- the first set of users to make sure everything is good. There's obviously cost for that and then moving to the next level and then moving everybody. And it's things like that, that cause ramp-up. And then after that, it would be growth. So if the firm brings on more traders, then obviously, we would make more money as things progress. That's typically how it works.

[Unknown Analyst:]

Okay. Got it. And then final question on the IR front, just kind of considering the fact that you've had a year plus of really successful performance at this point. What are you guys' thought as we look a year out in terms of IR outreach, events, potentially getting any analyst coverage and then just kind of generally revamping and updating your IR? Obviously, like, for instance, when I go to your website, your investor presentation is a couple of years old now. Like to what extent do you guys think you need to start getting the story out there better, now that you've scaled and have a lot better performance track record going?

[David Shworan:]

Yes. I think there's -- obviously, we have to get some focus on that with the lack of conferences and IR activities and travel and all of those things. We kind of dropped a little bit of that and kind of focused on clients. And getting all of the big clients and doing all of this really was the priority of the company, not necessarily the IR stuff. But as we continue this year, yes, I'm definitely focusing on that, looking at potentially when can we uplift to the next level, to the NASDAQ, et cetera. Is that on our radar, getting closer now as we're growing quite a bit faster and hitting all of these targets.

[So IR is going to be bigger, but it's -- that's what happens. That's what happened. Over the COVID situation, it was -- there wasn't -- I wasn't going to any conferences. We weren't doing much of that anymore, so it's kind of just one-on-ones, people calling and discussing stuff and didn't put a lot of attention on documents and all those things like we did in the past.:]

[Operator:]

And our next question comes from [ Richard Houchen ].

[Unknown Analyst:]

Yes. My name is [ Jani von Muis ], The Flying Dutchman. And I love aviation, sailing, golf. And whenever I golf or got in a sailboat with friends, I tell everyone about QMCI because it's my goal to let people know what a beautiful, great company this is. I'm rooting for you guys, and I'm very, very excited. So when do you anticipate announcing the next large contract?

[David Shworan:]

Well, I guess we just have to wait until we get everything all completed. So it's a bit of an unknown because it goes back and forth between dozens of people and legal levels, et cetera, et cetera. I think it's coming along quite nicely, so it's around the corner. But what does that mean? I just can't say, maybe in the coming months, maybe less.

[Unknown Analyst:]

Well, I congratulate you guys on the 18% and hope to talk to you again soon, and I'm very excited about this whole concept. Thank you very much.

[Operator:]

[Operator Instructions] And it does appear there are no further questions over the line at this time.

[David Shworan:]

Okay. Well, thank you so much, everybody. Appreciate it, and we'll look forward to talking to you next quarter. And if you have any questions, of course, feel free to reach out to Brendan Hopkins, [e-mail], and we can link up a call. And have a nice day. Goodbye.

[Operator:]

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