| Brendan Hopkins | executive |
| David Shworan | executive |
| Keith Randall | executive |
| Michael Kupinski | analyst |
Good day, everyone, and welcome to this QuoteMedia Second Quarter 2024 Results Conference Call. [Operator Instructions] Please note today's session is being recorded, and I'll be standing by should you need any assistance. It is now my pleasure to turn the floor -- to turn today's program over rather to Mr. Brendan Hopkins.
Thanks, Jim, and thank you all for joining us. I 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 in 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'd like to turn the call over to Dave Shworan, CEO of QuoteMedia.
Thanks, Brendan. Welcome, everybody, and thank you for joining us. We're happy to go over our 2024 Q2 results.
As you've probably seen in our filings, we achieved just under $4.7 million in revenue for the quarter, plus an increase of $341,000 of deferred revenue. A significant portion of the deferred revenue increase is a result of a lot of setup development and customization work we completed for several of our new as well as larger clients. Generally, this means that we've been paid by the clients and performed the related work to get the client ready to go live, but we have to recognize that revenue spread out over the term of the service contract, which could be as long as 3, 4 or 5 years.
So as I plan for the future and analyze how we're doing, I don't just look at the revenue lines, I look at everything. I look at our revenue, plus I look at the amount we billed and collected from our clients in the quarter, which is set up in development work that we've done, but can't recognize as revenue.
So you can see without having to defer our revenue would have been higher.
In addition, as I mentioned before, we've been deep in development and we are releasing several new products as well as additional proprietary data sets later this year.
We have lots of new clients in the pipeline, and we're getting closer to closing -- to getting them signed, and we're hoping to see some of the larger new prospects close in the coming months. In summary, everything is going well, and we do feel like we're -- we have -- we'll have a strong finish to the year, and believe that we'll have a very exciting 2025. 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.
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. We had a few clients who reduced 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, increased 3% from the comparative quarter. An increase in the average revenue per customer was offset by a decrease in the number of customers. Total Quotestream revenue decreased 4% with Corporate Quotestream revenue decreasing 5% and Individual Quotestream revenue decreasing 2%, both resulting from slight decreases in the number of customers and 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 improved infrastructure, new product development, data collection and the expansion of our global market coverage.
Our gross margin percentage was 48%, a 3% decrease, which was primarily due to the increase in cost of revenue from the comparative quarter.
Our total operating expenses increased 10% for the quarter. Most of the increase relates to additional personnel hired to achieve our expansion objectives, including improvements made through our infrastructure, security and business continuity management. Sales and marketing expenses increased 3% due to increased personnel costs, offset by a decrease in stock-based compensation expense. We incurred 60,000 in stock-based compensation expense in the comparative quarter related to the fair value adjustment to our preferred stock warrant liability. G&A expenses increased 12%, primarily due to the increase in bad debt expense related to increasing our allowance for bad debts by $125,000 during the quarter. This was offset by a decrease in professional fees as we incurred additional professional fees in the comparative quarter resulting from the change of principal accounts in January 2023.
Software development expenses increased 15%, primarily due to additional per development personnel hired since the comparative quarter.
We also capitalized a lower percentage of software developer salaries versus the comparative quarter, resulting in increased development expenses.
Our net loss for the quarter was $251,000 compared to net income of $74,000 in the comparative quarter. The decrease in net income was mainly due to increased personnel costs and $125,000 increase to our bad debt allowance during the quarter.
We expect our bottom line to improve for the remainder of the year as pending sales deals closed and our revenue growth improves.
Our adjusted EBITDA was $493,000 compared to $808,000 in the comparative quarter, a decrease of $314,000. 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 $233,000 at quarter end, which was $109,000 decrease from our year-end cash balance of $343,000.
Our deferred revenue totaled 1.21 -- sorry, $2.1 million at quarter end, which was a $300,000 increase from the $1.8 million at 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 of a service contract to which they relate.
Our year-to-date net cash flow from operations was $1.6 million, while net cash used in investing activities was $1.7 million primarily due to spending on infrastructure and product development. Thank you. And I'll now pass it back to Dave.
Thank you, Keith. We're now happy to open up the call for questions. And if you have any future questions after the call, please feel free to reach out to Brendan Hopkins and his e-mail addresses bhopkins@quotemedia.com.
So we'll now have questions.
[Operator Instructions] We'll hear first from [ Ankur Sagar ].
First question really regarding the revenue.
As I look at last year, I mean, it was a modest growth year. I mean you had quarters with a 10% revenue growth since the beginning of this fiscal year, Q1, Q2 has definitely been quite weak in terms of the revenue performance. I mean you have -- last couple of clients in the prepared remarks today, I mean some clients have decreased their spending. And I think the new order growth has been [ low ], is there anything you can comment on? Is it just due to the competitive pressures? I mean are you seeing increasing competition? Or why is it taking longer to close new deals or even that you're losing some. Or they are decreasing the spend lines?
Yes. Thanks for the question. I don't think -- obviously, business goes in surges, ups and downs and things like that. But the reality is like looking at our prospects, looking at our pipeline, looking at all the clients that we're talking to now, small, medium and large and going through kind of projections and looking at what we're hoping to close in the next 3 months, the next 6 months, the next 9 months, that type of thing. We do all of that. Those numbers and that spreadsheet is actually unbelievable.
So I'm really happy with what we're doing. I'm really happy with all the companies that are coming to us, it just takes time. The bigger ones obviously take time. We're doing some proposals that are really, really great. It's just that we've had -- yes, I mean, the first quarter was rough because we lost some clients at the very end of the year. And that continues. Obviously, those are recurring clients that are no longer there or the decreased spend is no longer there.
And so you're fighting through that as the quarters continue. But at the same time, the amount that we're doing, the amount of new data sets, new products catering to these other -- these clients, catering to our very large clients that are coming to us for much more stuff. Budgets are coming out, they want to spend a lot more with us every year.
And so as their budgets come out, they're assigning big blocks of money for us. It's really, really good.
So I guess it's just a -- it's a picture that people don't see the future picture, I guess, which is unfortunate. And it's very hard for us to do as a public company. We can't go down that path and talk too much about the future.
And so it's just, I guess, internally, we look at all of this, and we go through everything with the sales teams, and it's very good. Like things are very, very good.
So I just wanted to say that.
And so it seems to me, and I think your -- you said the same thing last call as well.
You seem pretty confident for the pipeline when you see it. Why is it taking longer to close this pipeline? And if you look at the rest of '24, what is your confidence level in being able to close some or a good chunk of it? Are these just very large deals? And anything you can share about that, and that will be great. I would assume being already in Q3 you probably have some level of confidence there as to what you can probably close in the next couple of quarters or so.
Yes, exactly. And that's why I think we're going to have a strong end of year.
I think that 2025 is going to be very strong. It's a matter of, are these closing sooner? Is it going to take longer? How much more discussions have to go on? How much more analysis, evaluation? Some of these projects are like 1 year of implementation, 1 year of setup, 1 year of development customization in order to then go live for a 5-year contract, things like that, right? So it takes a long time to do all of this. But we're taking out incumbents. We're replacing sometimes several vendors with a firm to take over everything, whether it's the actual workload, the development work, all the data sets, the different -- all the different areas that they're maybe licensing from all kinds of other third parties that QuoteMedia is replacing. We're incredibly strong now as far as doing that. We can substitute out lots and lots of vendors at certain firms and take over everything, which is our power right now. And all of this is proprietary data now to QuoteMedia, we own it.
We are collecting all of this ourselves. We're very strong in all of the data areas, too, right? So yes, it's just a matter of closing...
And are these deals like 6-figure, 7-figure deals? And are these in recurring revenue in nature? And again, what's your confidence level in terms of being able to close some before [ the end of this year ]?
There's every level of deal, right? There's -- I mean obviously, the smaller ones are ongoing, and we're always working on those. But the bigger focus is the medium ones, the larger ones, those are the ones I'm more focused on, trying to get those over the finish line, trying to find out is there anything more that needs to be done. Do we need to get in a room one more time and discuss everything? How do we push this faster? Sometimes it's time lines for the clients, sometimes it's their timing of their budgets. There's a lot of parts and pieces to it all. It's when do they terminate other contracts. I guess that's -- there's nobody who wants things closed more than I do, right? Like I do everything in my power to make it happen. But it's -- sometimes you just have to wait. It's like you can't -- you're not going to close this month, there's still this and this to go over and this and this to review. But yes, there's every level, every size, every size that you can imagine is in the pipeline.
One last one regarding the profitability and cash flow.
So as you have mentioned, I mean being a data company, QuoteMedia is profitable, it does generate cash.
You mentioned about having this multiyear site over, you chose to really heavily invest into your products. If I just look back at the audited financials in the last 5 years since 2019, QuoteMedia has generated about $12 million of cash, which -- a good chunk of that has went into software development. And the story is pretty much the same for the 6 months of '24. Does -- and that bet obviously allows you to control the destiny and take and not depend on other vendors. Obviously, that has taken time to get paid for that and have that new revenue ramp that you're expecting. Does it make sense for now to dial back on that? And at least let the cash collect on the balance sheet rather than just keep investing into that software development efforts that you're doing?
Yes. I mean, really, we're not -- I don't think that there's any more like massive projects that we're looking at. There's a handful of smaller projects that we want to do and we budget for them and we plan for them, and there's a few other data sets, for example, that I'd like to make sure that we finalize and we go down certain paths. We're doing a lot of internal data now.
So it's not additional costs necessarily, except for man hours and manpower but doing all of our proprietary data behind the scenes are analytics, all of our trading idea, all of the crunching of all the different numbers to flag different things for our clients and for improved trading activity and things like that.
So that's really where a lot of the energy is going now. We've kind of finished all the bigger projects that we were working on over the last few years.
I think probably the last, I would say, 4 years has been very, very big on new developments of new products and new data sets, and getting rid of third parties and just collecting everything ourselves.
So yes, it's been 4 years of hard, hard work. But I don't think it's like -- it's not like it's going to continue like that where we're going to keep spending another $5 million or whatever on the...
If I -- just to -- one addition to that, I mean if I just look at the 6 months financial and maybe Keith can chime in too.
Just -- I mean, the company did generate about $1.6 million, $1.7 million of cash, and that was capitalize in a software development cost. And I'm referring to that. I mean that software demand can that not be dialed back? Is it just the maintenance of your existing data sets? Is that what it is?
Most likely, I mean, Keith, maybe you can address this.
We can't capitalize maintenance, right? So that's maintenance expenses, and you'll note from my comments, we're capitalizing a smaller percentage of -- lately, we've been capitalizing a smaller percentage of developer salaries, which increases the software driven expense when you capitalize less, right? So I see -- I don't see our -- we were hiring at a pretty rapid rate over the last 4 years. I see our hiring leveling out.
And so yes, I do think we'll probably dial back the development over the next -- over the year.
So basically, we're on that same expectation if the revenue ramps from here with you signing any deals from this pipeline that you're so optimistic about that just drops to the bottom line and grow the cash and net income...
As Dave said, there's always going to be a new development to be done, or enhancements to existing products, really, that's a lot of what we're doing is to develop what we're capitalizing is almost -- most of it is enhancements to existing products as well, remember.
Yes. just by closing on my comments on this. I mean I say in a way, it's -- if I just look back, the company has invested this much cash into its products. Obviously, I don't think you guys are very happy with where the public market valuation sits right now.
Just you guys putting $12 million into the business, the valuation of this company is at $18 million. The revenue is not growing, so does the net income.
So I hope this is probably the trough of it and things change from here for the best. And I think that's what you expect as well.
Yes, exactly.
We'll move on to Michael Kupinski.
Just a couple of follow-up questions related to the comments there.
In terms of the revenues, how much is related to competitive pricing because I know that there's always that element there.
So versus lower volumes that we've seen from existing clients. I know we've talked about volumes in the past and was wondering if it's a macroeconomic situation that you could talk a little bit about. And of course, the versus the loss of clients, and I was just wondering if you can kind of give us thought on what that annualized revenue from the loss of clients might be? If you can just give us a little color there.
Yes. Keith, I don't really know numbers. I mean, I just kind of know our historical, we're typically running at around churn rate or a loss rate in the year of about 3%, I think.
So we've got a 97% retention rate.
I think that's been consistent all the way along. I know at the beginning of this year, we had that kind of happened. We're not really predicting a lot of loss of more clients, but it's just at the end of the year, that happened. But Keith, do you want to address some of that?
Well, and also remember too that some of the decreases are clients that are changing their data, maybe they want to save money on data, so they're switching to less expensive data.
And some of that is like pass-through fees.
So some of the decrease in revenue doesn't really impact our bottom line that much.
If you're talking about clients who just changed the, say, exchange data, for example.
So keep that in mind to you when -- because we have had clients that are looking for -- their invoices have gone down, but a lot of that in many cases is just exchange fees.
And what was the annualized revenue from the clients that you lost in the fourth quarter of 2023.
Yes, I don't have that figure. I mean, we can talk after, but I don't have that figure at my fingertips. I have to look into that.
And then in terms of -- you indicated that you're expecting a stronger second half or strong end of the year. I was wondering if you could just put some color around that, in particular, are you looking for 5% growth? Are you looking for 10% growth? And you could just give us some sense of what you mean by stall?
Yes.
I think when you're talking revenue growth, I think the third quarter is going to be relatively flat. But in the fourth quarter, I think we're probably looking at about a 5% increase over the fourth quarter of last year.
Got you. And then has the conversion time from pipeline of business to actual revenue, is that long -- is that tail kind of gotten longer? Or can you kind of give us a sense of what's happening in terms of the conversion.
Dave, do you want to address?
Yes. I mean it all depends on the clients.
So when we go through all the reviews, I mean, There's, I think, several hundred clients on the go at the same time, all the time and you're looking at when they will close, when are their -- when are the -- when do they terminate their other agreements, when do we start our development work, all of these things.
So it's hard to say. I mean there's always short tail and long tail and every kind in there. And then some of them are they're massive and you're like, okay, is that going to close by the end of the year? Or is it going to be -- probably not. It's just too big to close by the end of the year, so it's probably going to close in 2025. But it's really hard to answer questions like that because every client is different and every everything that we're looking at is different. And the more -- the bigger they are, the more complex they are, the more that you're taking over 4 or 5 vendors you're having to integrate into their trading system, their order management system so that they can release all of our products to their clients that have integrated trading and turn off all of their other products.
So there's -- you can see that, that can take time. That can take even up to a year of development work to do all that.
Now you do get paid for it, and you do have fees, monthly fees for all of that. But really then the big money kicks in once they go live, right? But you still make quite a bit on setup and development.
Unfortunately, we can't -- sorry to interrupt, Dave. Yes. But unfortunately, we can't start recognizing that revenue until their service starts.
So that's what we've encountered. And even in this quarter, we've had -- we've done development work during this quarter, but we haven't started recognizing any of the revenue because our service hasn't started.
And the I'm sorry, Keith.
You may have addressed this at a prior call. But why did those clients -- why did you lose the clients? What did they say in terms of why did they leave your service in the fourth quarter of last year?
I think I addressed that the last quarter, but so we had one company that was acquired and was part of an international firm that had all other data sets. And then we had another one that discontinued their business completely. I can't remember. And then there was a couple that decreased their spend by switching to low-cost exchange data. And that is a bit of a trend.
So that's going to be something that we're going to be fighting a bit on the top line. doesn't affect our bottom line, but it affects our top line because it is a trend where companies are trying to save money, and the exchanges are battling each other by coming out with lower cost exchange data to compete against each other.
And so when companies try to save money, that's one thing they look at. Is there a cheaper data we can use to see real-time quotes instead of our current data that we're getting from you? And the answer is yes. There is another data set that's come out from another exchange that's a little less costly. Maybe you can say 50% of your spend if you switch to that.
And so that's a bit of a trend in the industry. And it has been for a while. But as companies are always watching their dollars, that's something that happens.
And Dave, I know that you spent a lot of money over the last several years to increase your feature sets and improve product suites and so forth. Have you been disappointed in terms of the revenue impact from that spend, in particular because we were anticipating that we would see kind of heightened revenue, enhance revenue up to the double digits for -- at one point up as much as 20%. But obviously, that didn't happen. I was just wondering in terms of the spend that you're anticipating now and the feature set that you plan to roll out in the second half of this year, what the expectations would be, would there be a bigger impact from those feature sets than what we've seen so far? Or what -- can you just give us a sense of the market opportunity for some of the new features and products that you're planning.
Yes. I guess, to be honest, I am not as happy as I could be as far as switching to our own data and then taking that to market and hoping that the world would just switch everything to QuoteMedia and go away from competitors or multibillion-dollar competitors. But more and more trust and faith is happening. It's one of those things where you have to -- it's almost like your start-up in those areas, right, where the trust has to be there.
We have had firms now switched to us, which is great. We had one actually just closed last month that switched away from one of our large competitors to us. We've got others in discussions now that are large.
And so I wish it would happen faster, of course. But there was more to it than just switching to have that revenue. It was also switching to have the power to have the lack of -- less restrictions, less building of our competitors at the same time as building ourselves. The risks, there was a lot of risks where when you're using third parties, you could have third parties double your fees.
We have one that actually tried to do that.
We have -- and then terminations, I mean there's all kinds of things, competition.
So there's many reasons why we did what we did and we went through that spend. I mean if you want to become one of the largest providers, you need to take it all on.
And so that's what we did. And I think that it's going to go really well. It looks like it's going really well. We've got lots and lots of new prospects.
Our prospect pipeline has grown tremendously.
So that's that shows me we're going in the right direction.
Can you tell me what the new features that you're planning for the second half of this year, the introductions and give us a sense of what your -- what's going to be offered the second half?
Yes, there's -- I mean, there's quite a few different products that we're coming out with. We're coming up with paper trading, which we already have clients that are lined up for that. We've got our new technical charting products that are coming out, and hopefully, you're going to start to see some of those release onto some of the major portals and be able to see that in the limelight. That's been several years of development. We've got our integrated Quotestream web solution, which is now being used for firms that want to integrate their own software into it.
So it's now a platform that they don't have to maintain their own product, the main product. We maintain the main product and maintain subproduct inside us.
So that's -- it's kind of hard to explain on a quick call, but that's being very active. We've got 5 firms looking to do all of that. Yes. And then there's data, lots and lots of data, right, proprietary data and analytics and different things that we've -- now that we've owned our own everything, we can now process data and create -- use AI to process lots and lots of additional data that clients have been asking for, which was a restriction when we use third parties.
You're not allowed to do that.
So yes.
So now we're doing all of that.
So that's a big thing. But again, that doesn't incur a lot of cost because it's more man hours and people.
So that's good. But yes, there's lots happening. I mean, lots.
And we have no further signals from our audience. Mr. Shworan, I'll turn it back to you for any additional or closing remarks, sir.
Okay. Well, thank you so much, and thanks, everybody, for being on the call with us. Thanks for the questions. And yes, we look forward to succeeding, growing, doing great things. And if you have any further questions, please feel free to reach out to Brendan Hopkins. He can kind of direct everybody, bhopkins.quotemedia.com is as email address, and we look forward to speaking with you again. Thanks so much. Have a great day.
This does conclude today's teleconference, and we thank you all for your participation.
You may now disconnect your lines. Have a great day.