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

Good day, everyone, and welcome to today's second quarter results conference call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Dave Shworan. Please go ahead.

Thank you very much. I think she failed to say this is the QuoteMedia conference call, but I'll just state that. Anyway, thank you, and welcome, everyone. We appreciate you joining us today. Before we begin, I have a brief safe harbor statement. Except for historical information contained herein, the statements made in this call include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected. And now we're happy to go through our 2025 second quarter results. 2025 is turning out to be a very successful year for QuoteMedia. We're growing, and this quarter reflects that growth. We reported a 6% increase in the quarter on a ForEx-neutral basis, which is a solid result. On top of that, this year, we closed an additional $1.2 million in revenue that is not yet recognized. And this revenue will start to appear in our next quarter. So I'm very pleased that the growth is ramping, and we will expect to see double-digit growth as we move forward, supported by several promising deals in the final stages of negotiation. As always, we are expanding our data offerings as well as our products, and our clients are very happy with all of the progress we're making. We truly have state-of-the-art products and comprehensive top-tier data, all proprietary to QuoteMedia. Many asked me about AI and what QuoteMedia is doing with AI. QuoteMedia has been working with AI for many years, using it to scan our proprietary data and analytics for anomalies and flag areas for review. Over the past year, though, we've been expanding AI integration across the company. Soon, we will launch our proprietary chatbot, enabling users to instantly access data, analyze portfolios and make more informed investing decisions. It's all very exciting, and QuoteMedia is quickly becoming a leading player in the industry, both technologically and in data coverage. We're proudly succeeding in displacing the large incumbents in our industry. I'll now pass things over to Keith Randall to walk us through the financial details for the year, and then we'll be happy to take your 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. We had a 5% increase in total revenue for the quarter. And on an FX-neutral basis, revenue growth was 6%. Our revenue growth was mainly due to a 14% increase in Corporate Quotestream revenue due to an increase in the average revenue per customer. Our other revenue streams were flat for the quarter. 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 9% for the quarter, mainly due to stock exchange fee increases and increased usage versus the comparative quarter. The increase was also due to increased amortization expense associated with capitalized development costs. Our gross margin percentage decreased from 48% to 46%. We expect our gross margin percentage to improve going forward, however, as our revenue grows and the amortization expense related to development cost decreases as we capitalize less development costs. Our total operating expenses increased 20% for the quarter. Sales and marketing expenses were flat for the quarter, increasing 2%. G&A expenses were also flat, decreasing 2%, mainly due to an overall reduction in our staff count from the comparative quarter. Software development expenses increased by 64%. We reduced the number of development staff in late 2024. So while the overall expenditure on development decreased, our development cost expense increased this quarter due to a higher percentage of development salaries being expensed rather than capitalized. We capitalized 6% of development salaries this quarter versus 25% in the comparative period. Our net loss for the quarter was just under $850,000 compared to a net loss of $250,000 in the comparative quarter. Our adjusted EBITDA was $99,000 compared to $493,000 in the comparative quarter, a decrease of $394,000. The decrease in profitability is attributable to expensing a higher proportion of development costs. While this had no impact on cash flow, the negative impact on our earnings was twofold. Not only are we expensing a higher percentage of development costs in the current period, we're also incurring amortization expense in the current period related to higher levels of development costs capitalized in prior periods. We amortize development costs over 3 years. So as the impact of expensing past capitalized development cost diminishes, our earnings will improve accordingly. Our gross margin percentage will also improve in the upcoming quarters, as the amortization of development costs is a major component of our cost of revenue. 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 $414,000 at quarter end, which was a $171,000 decrease from our year-end cash balance of $585,000. Our deferred revenue totaled $2.4 million at quarter end. Note that this figure excludes approximately $500,000 in revenue from recently signed contracts that have not yet been invoiced at quarter end. The future costs associated with realizing that revenue is minimal, as most of our deferred revenue relates to setup and development work already completed. Those setup and development fees that have been deferred will be recognized in future years over the service contract to which they relate. Our year-to-date net cash flow from operations was $694,000, while net cash used in investing activities was $865,000, primarily due to spending on infrastructure and product development. Going forward, we expect double-digit growth for the remainder -- for the remaining quarters of 2025. We have not yet started to recognize revenue associated with some new large contracts signed in 2025, the total of which is approximately $1.2 million. We start to -- we expect to start recognizing that revenue in Q3 and Q4. These revenues -- these contracts have a development component, and the revenue related to those contracts cannot be recognized until development work is complete. Also, as mentioned earlier, we expect our bottom line to improve in the remainder of 2025 as our revenue grows and the amortization expense associated with capitalized development cost decreases. Thank you. Now I'll pass it back to Dave.

Thanks, Keith. So we'll now open up the call for any questions, and we'll handle questions.

[Operator Instructions] And our first question will come from Michael Kupinski with NOBLE Capital Markets.

It's Jacob Mutchler on for Michael Kupinski. I was just curious if you could talk a little bit more about the software development costs in the quarter and what led to the decision to expense more of those costs compared to capitalized? And kind of what the outlook would be for the back half of the year with software development costs?

I can answer that. So it wasn't necessarily a conscious decision to capitalize less, a lot of our projects are coming to completion. But we're also being more conservative in what we capitalize. There's a lot of gray area in that area. So we're being very conservative. There's tax implications to capitalizing development costs as well. So we want to be on the conservative side of capitalizing costs. And also, the -- our auditors have a tough time auditing some of those development costs as well. So we want to make it as easy as possible for them to audit it. So there's a number of factors that went into reducing the amount of development costs being capitalized.

All right. And then for the -- could you provide any outlook for the back half of the year as far as development costs go? Is Q2 a good benchmark? Or should we see...

I would expect, like the levels of cost being capitalized to level out. And then obviously, the amortization associated with that is steadily decreasing. Because right now, we're amortizing development costs at much higher levels in the past couple of years. So as the impact of that diminishes, our amortization expense goes down, our earnings go up, our margins go up.

Right. And then, could you talk a little bit more about some of these large-scale deployments that were mentioned? And maybe just the average lead time of some of these contracts, when could we start seeing some impact from these deployments?

Do you want me to address that, Keith? So yes, some of these are going to actually kick in or have started kicking in, so you're going to see them being recognized in Q3 and Q4 and onwards. And there's others that are for later. It's happening in maybe Q4, so they'd appear more in Q1 of next year, that type of thing. But yes, there's various different ones. So they come on at different times, but we're going to start to see it next quarter. And that's why we're expecting double-digit growth even into the teens in Q4.

Got you. I will hop back in queue.

And our next question will come from [ Ankur Sagar ], investor.

Good to be back on the growth mode again, to see some revenue growth. A couple of questions. In regards to the new contracts, Dave, this $1.2 million of projects or revenue that you have booked, could you provide some as to what portion of that is like the recurring revenue? And also, could you share some color on the new contracts that you said are towards the end of closing? Are these in the same sort of like figure range, large contracts? Or how would that affect the revenue line?

Yes. So I mean, there's recurring -- there's a recurring portion of them, obviously, and then there's a setup and development portion. So we have to wait until we either launch or they're phased approaches where certain development is done and covered, and then we launch Phase 1 and Phase 2. So these large deployments are typically not like an instant thing, right? They take over the course of 6 months to complete everything and progressively launch, but there's revenue all the way along. I guess the nice thing is that there's a lot of upfront payments. We can't recognize it because you have to finish the development in order to recognize it. But we've already finished, like one of them is quite large, and we've already -- I think we're at 90% complete on development already. So -- and these are all going to kick in. And then there's certainly a recurring portion and recurring stuff. And then there's the new ones that are very close to closing now. So we've got one that's imminent. And then we've got another one that's very close -- in the discussions to getting to that point. So we're looking really good. And the ones that have closed are already showing us these numbers. So if we can do the others as well, boy, we're really going to balloon. So pretty happy, and pretty happy with all the recurring. And it's all going very well now.

So the others that you could potentially close could be in the same figure range as well?

Correct.

Okay. And anything you could share in terms of the products or the data sets that has worked well with these new contracts that you could call out?

Well, it's pretty much comprehensive. So these large contracts are complete displacement of other companies. Or going down the path of our options, a lot of options, data options, analytics, trading, trading information, trading ideas, but also full comprehensive data coverage, right? So adding all our new charting, all of our new -- all of our data sets. So we displace and can cover everybody now. We essentially own our own data across the board of everything and have perfected it so that we're very competitive with the incumbents, the multibillion-dollar companies that are out there, as we all know, that have kind of owned the space for so long, we now are at the table, competing and winning.

I think you have mentioned this in prior calls as well. So could these new deals be in the same line where you get in the door with a smaller deal size, even though a bit bigger for your size, but then you basically get more [ rare ] to do with these large clients?

Yes. There's always that factor where it's hard to close a massive, massive deal because you got to kind of get in the door and start with a phase, even though they're very large for us. But we're always working with those clients to extend and go above and beyond that. And yes, so that's exactly how it works. You can't do everything all at once. That's too much for a big firm to handle. But once they realize that the first phase or first two phases has gone really well, then it's a matter of looking at everything else that's going on with the firm and determining what we can do. And a lot of money saving too. It's trying to find -- they're trying to find good green dollar savings, and we can provide that.

Got it. And one for Keith. Keith, I think on the last call, you mentioned something about in regards to the cash flow, where you had some deals towards the last week, end of quarter. You were supposed to collect some cash, even though the cash declined sequentially. Could you just talk about that? And also, with improved profitability, if you can just shed some light on how that will translate to cash flow growth from here on?

Yes. So our cash actually went up from Q1, still down from year-end. But we're expecting to be generating positive cash flow in Q3 or close to it and almost certainly in Q4. So that's backing out all the impact of capitalized costs, whether it's assets or development or whatnot. So if you back out all that and the amortization, you get a true, like, cash EBITDA. We're expecting to be at least breakeven cash-wise, if not positive in the remaining quarters.

Okay. Great. All right.

Just the -- yes, these development costs are skewing our results. So -- but the impact of that is going to gradually diminish over the next few quarters.

But those are just noncash charges, right?

Yeah, those are just an accounting exercise, really. So there's really no impact on the business.

Just to make it easy on the auditors, instead of just capitalizing, you expense them rather than just...

That's one factor, yes. That certainly -- because it became a problem on our last audit, just trying to support, as these audit standards change every year. So yes, that was one of the factors.

And our next question will come from [ Jonathan Jetmansen ].

I have a couple of questions here. Firstly, on gross margin. I was pretty surprised to see it drop as much as it did this quarter and just generally be lower than it was a few years ago, especially since I know you guys spend a lot of development time replacing some paid data sets with your own. So just trying to understand what was the financial impact of that initiative? And b, trying to understand kind of what is the breakdown in data cost of fixed versus variable? Because it's starting to -- based on the financials, it looks like most of your data costs are variable and it will continue to increase the revenue.

Keith, do you want to handle that?

Yes, sure. So -- one of the major components of cost of revenue is amortization of development costs. So that has still gone up, which is impacting our margins. Now in the upcoming months, it's going to start going down, which will obviously improve our margins. So we expect our margins to pretty dramatically improve over the next 1.5 years, so -- and going forward. So...

Yes, I mean...

Yes?

Just back to that question then that aside, like what's the kind of high-level breakdown in data cost of fixed versus variable?

Are you talking, like, of our cost of revenue, the stock exchange and other financial content costs?

Exactly. What's your fixed-price contracts and what's your volume-based that will increase as you sign more clients and pull more data?

Yes. I understand what you're saying, just trying to -- if I can pull it up quickly, the breakdown. Bear with me.

And then relatedly, like do you guys have any -- once again, I don't need the exact number, but roughly the financial savings from creating your own proprietary data sources?

Dave, do you have an idea of that? I think it's probably about $50,000 a month, I want to say.

Okay. I don't follow the question. But yes, go ahead. Sure.

No, no. Like we replaced some of our vendors, what did we save in vendor costs.

Yes. Well, we've been doing it over the last bunch of years, right? So yes. No, now it's all fixed cost. Obviously, we have teams that run the data, pull the data directly from all the sources, calculate everything. AI is going through all the data, all of that stuff. So our data sets are fairly fixed now as far as cost. I mean, we might grow it if we want to add more data or expand to have more coverage in certain areas or internationally or things like that. But yes, very fixed compared to what we were way back when we had different third-party data, where we had to pay every time we had a client. Definitely, it's a lot.

Yes. Second -- go ahead.

Yes, sorry. So just kind of -- you asked about the breakdown between fixed and variable.

Yes. If you just had a rough breakdown.

Yes, it's about 55% variable, 45% fixed. That includes stock exchange and other financial -- fixed financial content. So basically financial data, if you will.

There you go. Yes. So probably, the heavily weighted variable costs are because of like real-time data and real-time exchange fees, right? If we have 1,000 more users in the exchanges?

Right.

Right?

Yes.

I think the thing we're interested in is the 45% fixed. So that's -- obviously, there's going to be price increases. But as our revenue grows, that will stay somewhat constant. So our margins will improve.

Okay. The second question related more to OpEx. I followed this company from $10 million of revenue now to close to $20 million. And OpEx has kind of increased every year and cash flow continues to kind of go down. I guess the question is like, at what scale do you guys think you have the right team and infrastructure in place where we'll start to see more gross profit kind of drop to the bottom?

Yes, probably now. I mean, as we go forward, we've put a very big team together, a large team to handle all of this. And we've been able to handle these large contracts without doing mass hiring or anything like that. I guess the only problem could happen is if we get a bunch of these large contracts in and we have to kind of do them all at the same time. But we have done that in the past, and we do build based off a SaaS solution where everybody is using the same type of products. We're not building custom products for everybody. So -- we have to hook into trading systems. And then if we have to hook into 3 different trading systems at the same time, that will tax our back-end guys in that area. But -- so I think we're pretty solid as far as what we've got for headcount. And I think we can handle some pretty good growth without dramatic expansion of the company.

Okay. Final question. I joined the call late, so if this has been answered, obviously, I'll just read the transcript. But what was the number of just gross new bookings in the quarter given kind of the MD&A? And what does churn look like year-to-date, 2025?

Do we have those -- do we have any details on that, Keith?

Our churn rate this year has been very low. I don't have the exact figure right in front of me, but I know that we haven't -- I know we lost some customers in 2024, towards the back end of 2024. But we haven't lost any significant customers in 2025. What was the other?

What was new business bookings in Q2? Just like total ARR bookings?

Yes. I don't have that total right in front of me. If you're looking for the increase in recurring revenue, is that fair, like new revenue for the quarter?

Yes, just because I didn't see -- it didn't look like there was -- because the MD&A noted you signed some large contracts, and I didn't see a massive jump in deferred revenue. So just trying to understand what the actual bookings number was.

Yes. I mean, as I mentioned earlier, so there is about $500,000 in deferred revenue that -- it's signed, but it's not reflected on our books anywhere.

Got it. You haven't actually billed for it yet?

We haven't billed and we haven't collected. So it doesn't show up anywhere. So that will show up in -- so yes, the deferred revenue figures is a little deceiving.

Okay. That's all I got.

[Operator Instructions] And it appears there are no further questions at this time. Mr. Shworan, I'll turn the conference back to you.

Okay. Thank you very much. Thank you again, everyone, for joining us today. We appreciate your continued support and interest in QuoteMedia, of course. As always, if you have any follow-up questions, please feel to reach out to us by e-mail at investors.quotemedia.com. Thank you again, and we wish you have a great rest of your day. Bye-bye.

And this does conclude today's QuoteMedia second quarter results conference call. Thank you for your participation. You may now disconnect.