QuoteMedia, Inc. (QMCI) Earnings Call Transcript & Summary

Good day, everyone, and welcome to today's QuoteMedia Full Year Results. [Operator Instructions] Please note, today's call will be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Brendan Hopkins. Please go ahead.

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 include 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.

Thanks, Brendan. Welcome, everybody, and thank you for joining us to discuss our 2023 year-end results. We're very pleased that we increased our revenue close to $1.5 million in 2023 and notably, our adjusted EBITDA exceeded $3 million in the last year. Keith will be going through the numbers with us, but I would like to go through some of the key things that the company achieved in the past year. One of the most important -- this was one of the most important years in our history. Of course, we are proud that we have become the key providers of data and financial products to some of the largest companies in the industry, and we continue to expand into more and more firms. But the reason that we are being contacted is because of what our focus has been for the last few years. Not only are we creating state-of-the-art products, which over the years is what we've been known for, but our other focus is just as important. Our goal has been to expand our proprietary data sets and reduce the need for third-party data sourcing. Several years ago, the task seemed overwhelming, and the project of going directly to every single data source to collect, cleanse, normalize and amalgamate millions of data points across many areas of financial instruments and research was a daunting task. But we made the decision that it was important to own all of our own data in order to be fully competitive against the largest firms in the industry. Over the last couple of years, we've been releasing our proprietary data sets to market. And in the last year, we completed many of the projects and discontinued sourcing many areas of data from third-party providers. What's important to understand is where this puts QuoteMedia in the world of data provisioning. We are now at the table with a very -- with very large firms competing with the biggest names in the industry. True, this was a costly process, and we have huge teams focused on all of these data sets, but the power of what we now have has been our dream for many years. We have all the control when it comes to supplying data to our clients, removing limitations of distribution, competition, constraints of models and restrictive pricing. The trade-off of spending on our own data versus spending to help grow our competition is a no-brainer. Just like we used to do, we see a lot of smaller competitors using data from the larger firms, and that is now a nice target for us. We will continue down this path to expand on our proprietary data. We have been building the collection systems, the teams and all the processes for several years. So believe me, this was not a simple thing to achieve. Many have asked if we're focusing on AI. And yes, we're working with AI, machine learning and all of the hot buzzwords that you hear out there. At the same time, the other half of our team has been working on product, delivery products for all of the data that we provision. Our products have grown tremendously, and we have a very comprehensive library to service clients of all types. We have comprehensive data delivery systems such as feeds and APIs. We have a full spectrum of web content solutions for integration into trading systems, portals, et cetera. And we have our Quotestream product suite of terminals for professionals and traders of all levels. All of our products are forever expanding and features are being added every day. 2023 was an excellent year, and we are confident that we will have a very strong 2024. At this point, I'd like to turn the mic over to Keith, who can take us through some of the numbers, and then we can continue our discussions.

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 year. On an FX-neutral basis, our revenue growth was 9.5% as our revenue was negatively impacted by the average decline in the Canadian dollar since 2022. Calculating 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've recently signed. Breaking down our revenue, most of our revenue growth was from our interactive content revenue, which is web display content, which increased 15% due to an increase in average revenue per customer. Our total Quotestream revenue increased by 2% due to a 5% increase in corporate Quotestream revenue, also resulting from an increase in average revenue per customer. This was offset by our individual Quotestream revenue, which decreased by 11%. This was due to a decrease in subscribers and the decline of the Canadian dollar as approximately 50% of our individual Quotestream revenue is earned 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 3% for the year. This was 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. Our gross margin percentage was 51%, a 2% increase from 2022. The improvement in gross margin was due mainly to larger margins associated with the new customer contracts signed since the prior year. Our total operating expenses increased 14% for the year. 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 increased 6% and development expenses increased 32%, both due to increased personnel costs. G&A expenses increased 11%, primarily due to additional professional fees resulting from our change -- from the change of our principal accounts in January 2023. Our net income for the year was $362,000 compared to $444,000 in 2022. The decrease in net income of $82,000 was mainly due to higher-than-normal expenses incurred during the year related to completing our data consolidation initiative and changing public accounting firms. We expect our net income to improve in 2024 as our costs normalize and our revenue continues to grow. Our adjusted EBITDA was just over $3 million for the year compared to $2.7 million for 2022, an improvement of $300,000. 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 $342,000 at year-end, which was $136,000 decrease from our year-end cash balance of $478,000 in 2022. Our deferred revenue totaled $2.1 million at year-end, an increase of $950,000 from 2022. 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 over the service contract, which they relate. Our year-to-date net cash flow from operations was $3.1 million, while net cash used in investing activities was $3.3 million, primarily due to spending on infrastructure and product development. Thank you. And I'll now pass it back to Dave.

Thank you, Keith. Before we move on to questions, I just wanted to mention one more thing. In the last couple of years, we've had very successful launches of major product lines to some of our largest clients in the company's history. The sales cycle of these larger contracts are quite lengthy from initial discussions to signed contract to finally a full product launch. The success of these launches is not only leading to more business with these firms, but it's also attracting the eyes of other large firms. And as a result, we have some exciting prospects in the pipeline. So once again, thanks for taking the time to be on the call with us and I'd like to open it up to questions. So if you have any questions, please let us know. And also if you have future questions after this call, please feel free to reach out to Brendan Hopkins, and his e-mail address is [email protected]. I will open up the call for questions now.

[Operator Instructions] We'll move first to Michael Kupinski.

A couple of questions. I was wondering in terms of the revenue growth, I know that you said that you had a large client, and you expect to maybe run a little bit more deeply into that client in the future. And then also, you have now these data sets that you now no longer rely on third-party vendors. I was just wondering in terms of the revenue outlook, do you anticipate that revenues will accelerate from the 8% growth that you had in 2023 because you have all the feature sets and so forth and now it looks like you might be able to have a much more competitive offering. What are your thoughts in terms of just revenue growth?

Yes. Well, we're hoping that we have great revenue growth. We have a lot of prospects on the go because of bringing on these larger firms. And it's just a matter of closing them. Obviously, the larger the deals, the longer they take more discussions, but we're talking multimillion dollar deals. So it makes sense. Yes, by having our own data sets, which has been the focus for a few years now, it just gives us a lot of power. We now can negotiate any type of a deal that we need to negotiate. When you have third-party data sets that are coming in from competitors or other firms that you work with, where you are somewhat competing with them, then there's restrictions of negotiation, there's restrictions of redistribution, all kinds of things. We're now away from all of that. We're now on our own data. Our clients are all on our own data now, which is phenomenal. And so that should give us a lot of power, should give us a lot of power of negotiation and should allow us to close bigger and bigger deals without restriction.

And then can you describe the competition that is out there. You mentioned now that you have the ability to have your own data sets and where some of your competitors are not necessarily. They're using third-party vendors and so forth. I was just wondering if you can describe the competition. Are you seeing more competition from the smaller players? Or do you feel like you're picking up -- the prospect is that you'll pick up share from them? Or do you feel like the larger players in the industry have gotten more price sensitive and have become a little bit more aggressive on their pricing strategies? I was just wondering if you could just kind of give us the lay of the land in terms of the competition.

Yes, there's every level of competition. I think there are smaller players all the time. There's -- often, there are smaller players that have weaker data sets. So we're not really too worried about them. They -- often, they will only get maybe very, very small contracts because they're just trying to get startups and things like that. But when you get into real firms that need the data, need the accuracy, then it's us against the multibillion-dollar providers. And so that's our true competition. If there are some smaller third parties that use those providers, let's say -- I'll use FactSet as an example. FactSet is a competitor of ours. FactSet has their own data. We have competing data against FactSet. If there is a small firm that uses FactSet and delivers FactSet data, then that will be a target of ours to then go to that firm and say, you no longer need to use FactSet data. We can do a better deal for you. We can create a better partnership for you, and you can deliver QuoteMedia data and compete against FactSet. So it's just -- it takes us to a whole new level. And there are other big firms. I'm sure everybody knows all the multibillion-dollar firms in our industry. And we are now fully competitive against them, and that was our target, and we did it.

And so is the level of high investment funnel that you had elevated level of investment because you were doing these -- your own data sets. Are those now behind the company? And if so, can you kind of give us your thoughts in terms of margins, both on the gross margin basis and maybe on an adjusted EBITDA margin basis. What the impact might be from the fact that you may not be making these investments in 2024?

Yes, that is a considerable thing to think about. The margins will continue to grow on all these data sets now because we no longer have to pay based on usage of data. We now have gone down the path and done the spend and are continuing the people spend and all of that for these data sets. And so the margins will now grow tremendously. So for example, if somebody comes and buys all of our fundamental data and spends $1 million, our cost is almost 0 on top of that, right? So it's almost all profit at this point. So that's phenomenal with what we've achieved. We might continue to -- we're going to continue to go down some other data sets, some more proprietary interesting data sets. We're going to go down some more paths. But the major stuff that we've achieved this year and in the last year -- last couple of years really is full release of all of this data, is now really good for margins. So yes, yes, for sure, that's exactly why we did it.

And final question. What was the professional fees in the fourth quarter? I mean can you kind of give me a sense of what the impact was from the accounting change and that sort of thing on a dollar basis?

I can address that. I don't have the fourth quarter professional fees right in front of me. But -- so we changed our auditing firm in January '23. So there were some overlap fees involved with that. So we're being billed by both our old auditors and our new auditors during the transition phase. So that resulted in higher-than-normal auditing fees. Now I don't think those fees are going to go back to the levels we saw in previous years just because of the landscape out there with auditing. The standards that they have to abide by in order to do these audits are always changing and they want more and more evidence. So I don't think our professional fees are, like I said, are going to go down that much, but they will normalize and they won't be as much as in 2023.

Final question. In terms of the first quarter, can you kind of give us a sense whether or not revenue growth is going to be faster than the 2023 levels like the 8% you delivered? Or do you think that you're still looking at roughly 8% until you kind of gets and land additional larger scale business? I'm just trying to get a sense of the current pacings -- the revenue pacings at this point.

I think in the short term, we're looking at similar revenue growth, but depending on timing and closing on contracts, et cetera.

Yes. I mean basically, that's all I was going to say, is it all depends on the closing of these larger deals, right? And that's always happened, is you work on something and you project that it could close in the next 6 months and it takes 9 months. But that's the difficulty of our projections. Even when we sit around the table and do our own projections, we say, "Well, if that closes and that closes and that closes, well, then our projections are blown out of the water." So it's a difficult thing. But there are large contracts in discussions. There are things in the works. There are trips planned to meet all of these firms and sit at the table with 30 people and determine how we can replace 6 or 7 different vendors for them and save them money and create -- produce better product. So it's just a matter of closing and then we will exceed what we think.

But in all, even -- I'm sorry, David. In all, with even the 8% growth, though, you would still expect to see margin improvement in 2024?

Yes. Yes.

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

Okay. Well, that's a quiet group this time. Okay. Well, thank you for making the time to be on the call with us. And of course, if you have future questions, always available to speak. Please reach out to Brendan Hopkins at [email protected]. Thank you, everybody. Have a great day.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.