QuoteMedia, Inc. ($QMCI)

Good day, everyone, and welcome to today's QuoteMedia Q1 Results Conference Call. [Operator Instructions] Please note, this call is being recorded, and I'll be standing by for assistance. Now I'll turn the call over to your host, Dave Shworan. Please go ahead, Dave.

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 2026 first quarter results. We're very pleased with how 2026 is beginning for QuoteMedia. The momentum we built through 2025 has continued into the first quarter, and we believe the business is now entering a new phase focused not simply on growth, but scalable growth. Revenue increased 15% year-over-year this quarter, driven by continued expansion within existing accounts, new client wins and increasing traction among larger enterprise customers. We're seeing strong demand across our platforms and data offerings, and we continue to successfully compete against much larger incumbents in the industry. Importantly, the quality and predictability of our revenue continues to strengthen. Approximately 95% of our revenue is recurring in nature, providing substantial visibility and stability as we continue to grow the business. In addition, we continue to maintain client retention levels that are very close to 100%, which we believe reflects the value clients place on our products, data and services. Based on contracted and active business currently in place, our annualized revenue run rate is now above $22 million. We believe this reflects the growing size of the business, the strength of our recurring revenue model and the increasing momentum we're seeing across the company. We're also seeing increasing operating leverage within the business. One of the areas that we're particularly excited about internally is the impact artificial intelligence is already having across our operations. We're leveraging AI extensively across data cleansing, monitoring, quality assurance, quality control and software development workflows. These technologies are allowing us to significantly improve productivity and development velocity while scaling the business without needing to materially increase headcount alongside revenue growth. We believe this operational efficiency will become increasingly important as we continue to grow. From a profitability standpoint, adjusted EBITDA and earnings this quarter continued to be impacted by accounting treatment related to development costs, capitalization and an elevated amortization associated with prior development investments. Importantly, these accounting dynamics do not negatively impact cash flow, and we continue to expect improving profitability trends as revenue scales and amortization related to prior-period investments declines over time. A bit of a mouthful there. Our balance sheet also continues to strengthen. Deferred revenue remained strong at approximately $1.8 million, reflecting contracted business that will be recognized in the future periods and providing additional visibility into future revenue streams. Looking ahead, our sales pipeline remains strong. Enterprise activity continues to increase. And we believe that we're well positioned for continued double-digit growth throughout 2026. As our cash flow and overall financial position continues to strengthen, we also expect to evaluate additional capital allocation opportunities, including the potential for share repurchases. In addition, as QuoteMedia continues to grow and mature, we expect to increase our focus on Investor Relations and broader market awareness initiatives over time. Overall we believe QuoteMedia is becoming increasingly scalable, predictable and efficient. Our products continue to resonate strongly in the marketplace. Our recurring revenue base continues to expand, and we believe that we're still in the early stages of a significant long-term growth opportunity. With that, I'll now pass things over to Keith Randall to walk us through the financial details for the quarter. And then after that, we'll be happy to answer your questions. Go ahead, Keith.

Thank you, Dave, and welcome, everyone. I'll begin with the income statement. Unless otherwise noted, all comparisons are on a year-over-year basis. Our total revenue increased 15%, driven by a 17% increase in corporate Quotestream revenue and a 16% increase in interactive content revenue. Our revenue growth reflects continued success in both customer acquisition and expansion within existing accounts, especially among larger enterprise clients. Individual Quotestream revenue was relatively unchanged from 2025. Cost of revenue, which includes stock exchange fees, data costs and amortization of capitalized development increased 11%. The increase was driven primarily by higher variable exchange fees associated with revenue growth as well as increases in fixed stock exchange fees. During the quarter, we incurred approximately $230,000 in onetime expenses related to data fees, which also contributed to the increase in cost of revenue. Gross margin improved to 46%, compared to 44% in the prior year. Total operating expenses increased 23% during the quarter, primarily reflecting lower capitalization of development costs, and therefore, higher near-term expense recognition. Sales and marketing expenses increased 5%, mainly due to additional sales personnel added since the comparative quarter. G&A expenses increased 17%, primarily due to higher professional fees, partially offset by lower office rent expense. Following the expiration of our Vancouver office lease in July 2025, we downsized office space as the majority of our development team now works remotely. Software development expenses increased 42%, reflecting lower capitalization levels this quarter with 9% of development costs capitalized, compared to 27% in the comparative period. As a result, more development costs were expensed immediately during the quarter, while amortization expense remains elevated due to prior period investments. Importantly, while these accounting dynamics impacted earnings and adjusted EBITDA, they did not impact cash flow. Our net loss for the quarter was $621,000, compared to $500,000 in 2025. Adjusted EBITDA was $43,000, compared to $368,000 in the prior quarter. Profitability during the quarter continues to be impacted by elevated amortization expense related to prior [ period ] investments as well as the previously noted $230,000 in onetime data content expenses. If you remove the impact of development cost accounting and this nonrecurring expense, we would have had a profitable quarter. Please refer to the reconciliation included in our press release for details on adjusted EBITDA. Turning to the balance sheet and cash flow statements. We ended the quarter with $522,000 in cash, compared to $320,000 at the end of 2025. Deferred revenue totaled $1.8 million at quarter-end. The future costs associated with this deferred revenue are expected to be minimal, as the majority relates to setup and development work already completed and will be recognized over the remaining contract terms. Net cash provided by operating activities was $385,000, while investing activities used $183,000, primarily related to infrastructure and product development investments. Our revenue growth for the quarter was 15%, and we expect similar revenue growth through the remainder of 2026. We also expect continued improvement in gross margin and profitability as our revenue scales and the impact of prior period amortization decline over time. Thank you, and I'll now turn it back to Dave.

Thanks, Keith. Okay. We'll now open up the call for questions. Let us know if you have any questions.

[Operator Instructions] Our first question comes from Michael Kupinski of NOBLE Capital Markets.

First of all, I just want to talk a little bit more about the gross profit margins. They were down sequentially. And I was wondering if you can give us your thoughts on gross margins for the balance of the year, and what gross margin profile can the company sustain long term?

I can answer that. Yes, it was -- our gross margin was expected to be higher. It was hit by that onetime nonrecurring $230,000 fee. So if you remove that impact, then it would be -- our gross margin would have increased sequentially over like quarter-over-quarter.

Okay. Got you. And how much of the recent growth is coming from new customer wins versus expansion within existing clients? And is customer concentration increasing or decreasing? And then what does the sales pipeline look like relative to a year ago?

I'll address the first part of that, Dave, and you can address the sales pipeline. So with regard to how much is new business or the expansion of existing business, it's a combination of both really. I don't have the percentage. I could come up with that later. But in terms of -- I would say it's probably 50-50 split, as an estimate. what was your second part of that question, Mike?

Is customer concentration increasing or decreasing?

Yes. We have only 1 customer that represents more than 10% of our revenue, and that is decreasing actually, in terms of 1 customer's percentage of total revenue. So we're becoming less concentrated.

Okay. And then what does the sales pipeline look like relative to a year ago?

Dave, do you want to deal with that question?

Yes. Sure. Yes. No, the pipeline is actually probably the strongest it's ever been. We've done a whole bunch of new RFPs for some large contracts. We've brought to the table on many, many accounts in the last few months. It's much bigger than it ever was and the companies that are coming to us are much larger. So we're doing some pretty big proposals for replacement of large incumbent deals. So hopefully, we'll be able to do some announcements in the coming months here to tell everybody how things are going on that line. But yes, we're -- our pipeline is much bigger than it's ever been.

Got you. And then just coming back on your AI comments. Are clients requesting AI-enabled features or workflows at this point?

Yes. Yes, for sure. There's quite a bit of chat obviously about AI all the way across. There's companies that are incorporating AI into their systems so they need our data for different things that they're doing with AI. They're asking us to -- we're producing quite a few different AI products and working with clients on the AI products that they're looking for. So we're doing a lot of AI work for the clients to get them either portfolio analysis or chat bot or all these different AI pieces of the puzzle. So they're trying to grow in AI and they're coming to us because we provide all of their data, we provide all their products and it's -- they need to keep moving with AI just as we do. So it's a very -- it's a big thing. But it takes time. Companies have to figure out how they're going to do it and what they want to do. There's some obviously low-hanging fruit showing, as you say, an end user or a trader, what's happening in the market. We've got AI products that when you log into your account and you're looking at your portfolio, it does a full AI analysis of your portfolio. It goes into all of our data. It does an analysis of data, news, releases, et cetera, et cetera, filings, comes back and tells you why certain stocks are up or down in your portfolio. So different things that you want to look at and reasons for you to trade. So we're doing a lot of this AI work. QuoteMedia has always been a data on top of data type of company. So that's why companies really like us, and they're growing with us, and they're staying with us. Because we're not just providing the market data and news and financials. We're providing them all of those services on top of that, that allows them to become better companies.

And Dave, just as a follow-up, could AI reduce the value of proprietary market data? Or does it increase demand?

Well, I mean, sometimes people come to me and they say, "Oh, somebody is going to build media with AI." I go, well, there's a lot to it. I mean there's a lot of parts and pieces to it at all. I think that the -- AI is just making our lives easier, better. I used to have large QA teams to test data, triangulate errors, look at anomalies in the data. AI can do all of that. AI can summarize news for us. AI can do news sentiments, can do stock analysis, portfolio analysis, all of these things that it's just making our lives easier. And then also developers. I mean we -- I'm the biggest fan of AI. I've used AI for years. And having our developers actually dive into AI and using AI as deeply as they are, we're finding that productivity is going up 2x, 3x, 4x because it's -- AI is connected into our ticketing system for our developers, our whole system of how we write tickets and assign them to developers. All of that's now being done by AI. So when a developer is looking at a ticket, it's time for you to build this or that or add these features or fix this bug, AI has already said, "Here's the problem. Here's where it is. Here's what you need to code to fix it. Or I can code it for you and you can check it." Like imagine that, it's actually unbelievable what we're doing with AI. So I'm just seeing that over time, we're just going to become stronger and stronger and stronger. And we're not going to have to have these massive companies like these multibillion-dollar competitors of ours have so many employees. And we don't need to keep hiring based on that. We can grow double, triple in size and not need to expand as much. That's what I'm seeing.

[Operator Instructions] Dave, we have no further questions at this time. Back over to you for any additional or closing comments.

All right. Well, yes, it was a short one. I mean it's only Q1, so we'll see you guys in Q2. Thanks again to everyone for joining us. We appreciate your continued support, of course, and interest in QuoteMedia. And as always, if you have any follow-up questions, feel free to reach out to us at investors.quotemedia.com. Thank you again, and we wish you a great rest of your day. Bye-bye.

That concludes our meeting today. You may now disconnect.