QuoteMedia, Inc. (PNK:QMCI) Q4 2022 Earnings Call Transcript

QuoteMedia, Inc. (PNK:QMCI) Q4 2022 Earnings Call Transcript April 3, 2023

Operator: Good day everyone and welcome to the 2022 Annual Results. It is now my pleasure to turn the call over to Brendan Hopkins. Please go ahead.

Brendan Hopkins: Thank you, everyone, for joining us. 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 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.

Dave Shworan: Thanks Brendan. Welcome, everybody and thank you for joining us to discuss our 2022 year-end results. As I’m sure you all read in our filings, we had a terrific year in 2022 and I’m pleased to report that we achieved a 16% increase in revenue over 2021. Our revenue grew by $2.3 million, taking our top line to $17.5 million for the year. And this growth curve is continuing as more and more firms choose QuoteMedia for their market data needs. In addition, our EBITDA improved by over $1 million last year, resulting in an EBITDA of $2.7 million for the year. As I have mentioned on previous calls, we had several large firms signed with QuoteMedia. We developed a product for them and started launching services to their customers in 2022.

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We continue to roll out products and services for various contracts already signed but we also are incredibly busy with additional firms discussing the opportunities for us to take over their market data and research provisioning. The trend that we’re seeing now is that many firms are recognizing us as a top-tier provider and an excellent alternative to replace older incumbents with antiquated data delivery and old looking displays. QuoteMedia certainly shines when it comes to modern and attractive product offerings. The other trend that we’re seeing is that our new products and data sets are becoming more and more popular with our clients. The expansion of our services to include our new analytics, metrics and scoring systems, our new market research services and reports, new proprietary data sets and ever-growing financial applications and web services are definitely gaining popularity.

Many firms choose us because we’re continuing to grow in all of these areas. 2022 was an excellent year. and we’re on track to have a very successful 2023 as well. At this point, I’d like to turn over the mic to Keith Randall, who will take us through the numbers and then we can open up the call to questions.

Keith Randall: Thank you, 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 a great year with a 16% 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 large customers – to attract the large customers we recently signed. Breaking down our revenue. Our total Quotestream revenue increased by 4% due to the 8% increase in corporate Quotestream revenue. This is primarily due to the contracts signed during the year with 2 large Canadian banks, the second of which started in November. Our individual Quotestream revenue decreased by 8%, 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 31%, mainly due to an increase in the number and size of our customer base and in particular, the contract signed with the large Canadian banks previously mentioned. 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 6% for the year, 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. Overall, our cost of revenue decreased as a percentage of sales increasing our gross margin percentage to 49% from 44% in 2021.

The improvement is mainly due to the higher gross margins associated with the new contracts signed during the year. Our total operating expenses increased 19% for the year. Most of the increase relates to improvements made to our infrastructure, security and business continuity management. And in particular, the costs associated with obtaining SOC 2 Type 2 certification which we achieved in November. SOC 2 certification provides independent assurance that an organization maintains a high level of information security and has controls in place to ensure business continuity. Sales and marketing expenses increased 18% and development expenses increased 22%, primarily due to additional personnel hired to achieve our expansion objectives. G&A expenses increased 19%, primarily due to increased personnel costs and software expenses related to the SOC2 certification process.

Our net income for the year was $444,000 compared to $212,000 in the comparative year, an increase of $232,000. Our adjusted EBITDA was $2.7 million compared to $1.6 million in the prior year, an improvement of $1.1 million. 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 $478,000 at year-end which was a $219,000 increase from 2021. Our net cash flow from operations was $3.1 million, while net cash used in investing activities was $2.9 million, primarily due to spending on infrastructure and product development. Looking forward to 2023, based on revenue already under contract and new opportunities currently in the discussion phase, we expect to meet or exceed our 2022 revenue growth and significantly approve our net income.

Thank you. And I’ll now pass it back to Dave.

Dave Shworan: Thank you, Keith. Once again, thanks for making the time to be on the call with us. At this time, I’d like to open up the call to any questions.

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Q&A Session

Operator: We’ll take our first question from (ph).

Unidentified Analyst: Looks like a great year overall, congratulations on that. A couple of questions. And you kind of already touched on the operating expenses going up overall 19% which is outpacing revenue growth a little bit and I understand the reasons why. How do you see that normalizing in the year and hopefully, beyond this year, they’re going to come back down. Is there any percentage we could put on that in the future? Do you feel like you have enough people at this point? And if I can just sneak in another concern or question is for the future, what do you guys see as your biggest challenge, the biggest concern?

Dave Shworan: While I do think that we are going to have improvement in that area. And Keith, maybe you can address some of that as far as — we did have some increased spending. We also have additional work that we’re doing to decrease costs over time with third-party data and things like that. So those are some things we’re working on. But I think we all — we are going to continue to grow. So I can’t say that we’ve got enough people in order to do this as we get bigger and bigger and bigger, of course. But we do have some pretty good teams in place now. We’ve established a pretty good kind of core group that runs everything management level, etcetera. One thing we have noticed, though, is that it is becoming more expensive for people.

I think in the entire tech industry, there was a pretty good surge of costs going – costs to hire and things like that, finding people, we’re noticing that there is a big change in the industry. So Keith, do you want to answer that and then we can get to question two.

Keith Randall: Yes. I mean we — for 2023, we’re expecting our revenues — revenue growth to exceed our operating expense growth to answer your question. So we expect some of those costs to normalize. There’s a few sort of unusual costs this year, nonrecurring costs. So we do expect that number to be below our revenue growth for 2023.

Dave Shworan: Okay. And then the second question was to what hurdles do we find or things that we’ll run into in growing. And I don’t think that we have a lot of hurdles. We’ve done very well. The last few years has been — has proven to us that we’ve actually been able to overcome a lot of hurdles. Obviously, with COVID was one but also just the amount of new products, new data sets, new things that we had to deliver as well as the large clients that we signed in having to construct all of their products, merge with all of their systems and release everything. I think we’ve done very, very well. And as a team, I think that I’m very proud of the company and everybody that’s been involved in all of it, we’ve succeeded. Clients are happy.

But I guess that’s the thing is if we get too many clients, then that makes it pretty tough to create everything that people are looking for but that’s growth. And I actually hope that, that happens. I hope that, that becomes the hurdle that we have to overcome. Thanks for your question.

Operator: We’ll take our next question from (ph).

Unidentified Analyst: I have a couple here. If you go back to OpEx, you guys said you had some extra expenses this year just because of the SOC 2 certification. I’m wondering, are these ongoing expenses or were these onetime payments just to get the certification? And can you tell us about how much were they, how much they affect your operating expenses exactly?