Coinbase Global Q1 2024 Earnings Call Transcript

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May 14, 2024

There are 4 speakers on the call.

Operator

Greetings, and welcome to the Intelenetics First Quarter 2024 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Baumann with FNK Investor Relations.

Operator

Thank you, sir. You may begin.

Speaker 1

Thank you, and good afternoon, everyone. I am pleased to welcome you to Intelimetics' 2024 First Quarter Conference Call. Before we begin, I would like to remind listeners that during this conference call, comments made by management may include forward looking statements regarding Intelinetics Inc. That are not historical facts. These forward looking statements are based on the current expectations and beliefs of management, and they are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results.

Speaker 1

Intelinetics, Inc. Undertakes no duty to update any forward looking statements. For more information about factors that may cause actual results to differ materially from forward looking statements, please refer to the press release issued today, as well as risks and uncertainties included in the section under the caption Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations in Intelimetics' Annual Report on Form 10 ks or the quarterly report on Form 10 Q filed today. Also, please note that on the call today, management will discuss non GAAP financial measures such as adjusted EBITDA and recurring revenue. Non GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non GAAP financial measures presented by other companies.

Speaker 1

A reconciliation between GAAP and non GAAP measures can be found in the press release issued today. With all that said, I would now like to turn the call over to Jim D'Sosio, Intelenetics' President and CEO. Jim, the call is yours.

Speaker 2

Thank you, Tom. The transition of Intelenetics to a SaaS centric company continues. Our recurring revenue continues to grow faster than our consolidated revenue and the SaaS portion of our recurring revenue is an increasingly important part of our business. This progress comes even as our newest SaaS offering IntelliCloud Payable Automation Solution or iPaaS has just started contributing to our results. Response for iPaaS has been very strong and our pipeline of opportunities for iPaaS is growing rapidly.

Speaker 2

Demand for the yellow folded K-twelve SaaS solution is also growing. And overall, Intelinetics is well positioned across all our SaaS offerings. Accordingly, we are accelerating our investment in marketing our SaaS offerings, not just to support Ipass, but to support all of our SaaS solutions. SaaS revenue as a percentage of our consolidated revenue increased to 31% in the Q1, up from approximately 29% in the Q1 last year. Our goal is to make recurring revenue the majority of our total revenue with as much contracted SaaS revenue as possible.

Speaker 2

This will make our business very easy to model, reduce earnings volatility and benefit shareholders. It will also enable us to appropriately size fixed cost so that we are systematically profitable, creating a durable, sustainable, scalable platform for profitable growth. Our non recurring software revenue continues to become less and less relevant to our story. Meanwhile, the document conversion portion of our digital transformation business, including business process outsourcing and document storage and retrieval continues to generate positive contribution margin. As you may recall, we significantly expanded this business with the acquisition of Graphic Sciences in 2020.

Speaker 2

And since then, this business provided additional cash flow to create and acquire SaaS offerings. However, over time, the organic growth opportunities in this business will become less consistent. Additionally, the non recurring nature of this business makes budgeting and modeling more difficult. We have no plans to divest this business as it continues to generate cash. However, we plan to maximize our promotional activities around SaaS offerings rather than non recurring revenue streams with the goal of accelerating our SaaS growth.

Speaker 2

This strategy the non revision is not a revision of our prior strategy. Those who have followed Intelinetics recognize that we have been increasingly emphasizing our SaaS business lines over the past few years, even more so since the Yellow Folder acquisition. This is an acceleration of that strategy based on the success we have had over the past 2 years and the early response to Ipass. We see a path to evolving into a nearly total SaaS company, a transformation which we strongly believe will benefit shareholders. As I said, our Ipass solution has given us significant momentum.

Speaker 2

The lower end of our pipeline has increased by 50% over the past 6 months. We have signed 9 customers and 8 of the 9 have already paid in full, which is uncommon for SaaS deployments where customers typically delay payment until deployment is fully complete. This data point reinforces our optimism regarding this solution, validating the customer support for Ipass and demonstrating the tangible value Ipass provides to users. In aggregate, these 9 customers represent an estimated combined annual revenue of $500,000 and we expect to more than double the customer count in this business over the next few quarters. As we move through 2024, we anticipate Ipass becoming a larger and larger contributor to our consolidated revenue.

Speaker 2

As I previously said, our 2024 budget includes an incremental $400,000 of spend towards accelerating Ipass. This includes sales and marketing dollars as well as growing our development staff. Simultaneously, our K-twelve operations now have 597 K-twelve districts generating significant SaaS revenue, which more than doubles our presence in this vertical market since before we acquired Yellow Folder in April 2022. Importantly, each of these districts is a target for additional Intelimetics services, including Ipass. We anticipate launching a K-twelve Ipass pilot this summer to address this opportunity.

Speaker 2

At this time, I would like to turn the call over to our Chief Financial Officer, Joe Spain, to talk to you about our financials. Thanks, Jim. I will now review our financial results for the Q1 of 2024. Total revenue for the quarter ended March 31, 'twenty four increased 7.7 percent to $4,500,000 dollars as compared to $4,200,000 for the same period last year. The following are the material components of our revenue presented on our statement of operations.

Speaker 2

Subscription software, which is comprised of SaaS including hosting revenue and software maintenance service revenue increased to $1,760,000 for the quarter from $1,590,000 for the same period last year. SaaS grew 13.5 percent and consistent with history and as expected, our software maintenance services are growing more slowly at 2.4% over 2023. Professional services revenue increased 7.8% to $2,500,000 for the quarter from $2,300,000 for the same period last year. As a percent of total revenue, professional services revenue was 55% for the quarter the same as last year. Consolidated gross margin increased 115 basis points to 64.3% for Q1 this year compared to 63.2% last year.

Speaker 2

The increase was driven by both better revenue mix, more weighting towards recurring revenue and positive impact from price increases. Operating expenses increased 24.2 percent to $2,900,000 for Q1 'twenty four compared to 2 point $4,000,000 in Q1 2023. The increase is largely due to investments in structure and scale as well as timing of equity compensation expenses. Of note, we expensed a 3 $398,000 charge for restricted stock awards to employees in the quarter, of which $328,000 was non cash. Sales and marketing expense for the quarter decreased 7.8% compared to the same period in 2023, which is largely a timing matter.

Speaker 2

We continue to invest in marketing and sales. For example, we hired an additional sales rep last quarter. We are also increasing our trade show activity in 2024, which is important to both our Ipass and K-twelve acceleration. Net loss for Q1 was $175,000 compared to net income of $113,000 for the same period last year. The primary driver here was the $398,000 equity compensation expense I referenced a moment ago, which is also called out in the earnings release including that $375,000 of it was one time.

Speaker 2

Loss per share was $0.04 per share compared to earnings per share of 0 point the quarter was $673,000 compared to an adjusted EBITDA of $630,000 for the same period in 'twenty three. Next, I'll turn to a brief overview of Intelimetics balance sheet. At March 31, we had cash of $1,200,000 and accounts receivable net of $1,900,000 Our total assets were $18,900,000 including $9,500,000 in intangible assets and goodwill as part of acquisitions made since 2020. Total liabilities were $8,800,000 including $2,600,000 in deferred revenues reflecting SIME, SaaS and maintenance contracts and $2,460,000 in debt principal as of March 31. As noted in our Q4 earnings call in March, we prepaid $500,000 of our long term debt and we expect to have no net debt meaning debt less cash at the end of 2024.

Speaker 2

Further, we intend to prepay an additional $325,000 of our debt principal this month, which leaves the remaining debt principal of $2,100,000 due December 1, 2025. I want to wrap up with our financial outlook. Based on our current plans and assumptions and subject to risks and uncertainties we described in our filings and this call, we are reiterating our expectations to grow revenues on a year over year basis for fiscal year 2024. Regarding adjusted EBITDA, we are revising our guidance and expectation that adjusted EBITDA for 2024 will be at or slightly less than 2023 levels. We have revised our guidance due to our expectation that a long standing customer, our largest, will take steps to shift certain tasks performed by our document conversion business from one office location to another location in a way that could reduce annual revenue for our document conversion segment starting in Q4, 2024.

Speaker 2

Our management team believes the total value proposition which we provide our customer is substantial that the customer understands that the timely and accurate execution of the task we perform are extremely important to it and hence we intend to educate and negotiate in good faith with the customer to have a mutually agreeable outcome. Thanks, Joe. Jim, do you want to add that? As a reminder, yes, as a reminder, our document conversion business has multiple contracts with the customer beneath the overall master contract. These contracts assign different prices in different locations for the same or similar work and have done so for many years.

Speaker 2

If you cherry picked locations strictly on price without understanding that these contracts are economically linked, a customer could save for a short period of time until contract renegotiation, which for us is May 2025. Further, Graphic Sciences, our subsidiary, has been performing this specific work since 2017 and is quite good at it. And we have many incumbent advantages. Aside from high change costs, a new provider would have to be willing to accept same day service level agreements and financial fines for every single error made in processing, which I'm very happy to say we rarely incur. Perhaps once every 2 years, which is just about error free for 5,000,000 images processed annually.

Speaker 2

We expect we can work out a mutually acceptable solution with this customer, but there are no guarantees in these sorts of negotiations. So we're doing our duty to advise you on this developing situation. I'm proud that this business can withstand potential revenue reductions from our largest customer and still anticipate delivering adjusted EBITDA for 2024 in a similar range as 20 23. With that said, we thank you all for listening. And at this time, we'd like to open the call up to Q and A.

Operator

Thank you. We will now be conducting a question and answer Our first question comes from the line of Howard Halpern with Taglich Brothers. Please proceed with your question.

Speaker 3

Congratulations on Q1 results, guys. In terms of the total number of sales reps, you said you added 1. How many do you have and are they structured in a way where you're developing an iPass team or are they integrated with the K through 12 operation?

Speaker 2

So we have 5 direct sales reps and then our management team are sales reps too and carry quotas. And yes, we hired the new sales rep into our Ipass team who will handle finding new partners to resell our Ipass product through and also reselling to our K-twelve customer base where our other 2 sales reps, one being the executive in charge of that, are selling iPass to our one of our existing partners. That's where the great successes come from, Howard.

Speaker 3

Okay. And is the implementation process going to be simpler for the K-twelve than it is for the larger customer of Constellation customers?

Speaker 2

We believe so. We just inked our 1st data site customer out of our K-twelve customer base and it's going to be a little bit different to start, not as complex as some of our commercial businesses that are using the product. Certainly with multi state, multi tax, multi country situations with our commercial product, K-twelve is a little bit more straightforward. So, we think it will be simpler. And the other good great news is, this is a fairly new release.

Speaker 2

And over the last year or so, our people have gotten much better, the product has matured more and we've gotten much better at implementing it, etcetera. I've been doing this for a couple of years and when all of your SaaS customers pay, that means you've got a pretty darn good product and a pretty good implementation. And we've never I've never really seen that before. Usually people are holding money till you go live or they say you got a bug, you say you got this. They've all paid, which is a great metric for us to track how our business is going and how the product is doing.

Speaker 3

And is that why some of the incremental spend that you have is on, I guess, support or implementation type of people also?

Speaker 2

Exactly, exactly. We're a little concerned that we oversell the product and don't have the support staff to get it up and running as quickly as we So we're investing in the support staff as well.

Speaker 3

And you anticipate, if you were to sign 8 or 9 new contracts, do you think from the commercial side, do you think you could get them up and run all up and running before the end of the year?

Speaker 2

It depends on when we sign them. If we sign them in the next couple of weeks, most definitely. We're looking at a probably a conservatively a 60 day implementation and it's usually not us that slows it down. It's usually they have to get their systems ready. We need to do integration into their system.

Speaker 2

So they have to have a developer available to work with us. So there's a couple of things out of our control. But we've been very successful once signed getting people up pretty consistently in 60 to 90 days.

Speaker 3

Okay. And one last one, we should see incremental increases in G and A expense from that 1.8 level if you take out the onetime stock compensation expense?

Speaker 2

Yes. Joe, do you want to elaborate on that? Yes. Yes. That's what I gave.

Speaker 3

Okay. Okay. Okay. Thanks guys and keep up the great work.

Speaker 2

Thank you, Howard. Going forward, any questions, please feel free to contact us directly, Joe and myself, or you can contact Tom Baumann at FNKIR and we'd be happy to have a conversation and answer any additional questions that you might have. So with that, I'd like to wrap up. Intelenetics is well positioned for continued success. We have significant momentum, strong competitive position in growing markets and a diverse set of solutions with ample cross selling opportunities.

Speaker 2

Our business model structured around recurring revenue is working. We appreciate the continued support of our long time shareholders and aim to attract new investors as well by delivering strong and consistent financial results. Thank you for joining us today, and we look forward to speaking again on our next conference call. Thank you all.

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Earnings Conference Call
Coinbase Global Q1 2024
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