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Technology - Software - Application - NASDAQ - US
$ 1.83
4.57 %
$ 16.9 M
Market Cap
-9.15
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2018 - Q3
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Executives

Michael Pritchard - Company Counsel, Haynes & Boone Alex Harrington - Chief Executive Officer Judy Krandel – Chief Financial Officer..

Analysts

Henry Link – Private Investor.

Operator

Ladies and gentlemen, good day and welcome to the PeerStream Incorporated Third Quarter 2018 Earnings Conference. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Pritchard, Company Counsel from Haynes & Boone. Please go ahead, sir..

Michael Pritchard

Thank you. Good morning and welcome to the PeerStream, Inc., formerly known as Snap Interactive, Inc. third quarter 2018 earnings business update call. With me on the call today are Alex Harrington, Chief Executive Officer; and Judy Krandel, Chief Financial Officer.

Before I turn the call over to management, I’d like to remind everyone that earlier today, we issued a presentation to accompany this call. The presentation can be accessed on the Company’s website, www.peerstream.com, under the quarterly earnings tab of the new section or by following the link on PeerStream’s homepage.

I’d like to inform everyone that certain statements made during today’s conference call that are not statements of historical fact, including those concerning future plans, objectives, goals, strategies and performance, are forward-looking statements.

These statements reflect the good faith, beliefs, and judgments of PeerStream’s management and are based upon currently available information only as of the date of this conference call. These statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the current expectation.

These factors include those described in the Risk Factors section of the Company’s periodic reports that are filed with the Securities and Exchange Commission.

Forward-looking statements are not guarantees of future performance and the Company expressly disclaims any obligation to update earlier statements as a result of new information, except as required by law. Certain non-GAAP measures may be discussed during today’s presentation including adjusted EBITDA.

Adjusted EBITDA has been calculated consistent with the manner in which it is defined in PeerStream’s periodic reports filed with the Securities and Exchange Commission.

Adjusted EBITDA has been reconciled for the nearest applicable GAAP measure in this presentation and in PeerStream’s earnings release, which is also available under the quarterly earnings tab of the news section of PeerStream’s website, which once again is www.peerstream.com.

With that, I’ll turn the call over to Alex Harrington, PeerStream’s Chief Executive Officer.

Alex?.

Alex Harrington

Thanks so much Michael and thanks everyone for joining today. As Michael mentioned, you can download our earnings presentation on our website. If you're following along, we're starting on Page 3, and I'll start with a strategic discussion talking about how we are positioning ourselves in the marketplace.

PeerStream is a global internet solutions provider, providing real world adoption of emerging blockchain technologies by developing software, services and applications for corporate clients and consumers and we're leveraging a 20 year history of technology innovation. We have 26 issued patents.

We have IP licenses to Microsoft, Sony and Activision, all that underpins a history of innovator in multimedia communication app. We served nearly half a billion users since inception and host of the world's leading collections of video chat communities with leading apps like Paltalk.

But today, our opportunity is in the launch of our Business Solutions Group, which started in March 2018, represents an opportunity to capture a wave of growth in a corporate adoption of blockchain software and services and this is a new revenue stream for the business that is business-to-business and this is a growth opportunities that is – it represents a very fast wave of adoption.

And you can see on Page 4 of the presentation, which characterizes the high growth market opportunity.

Juniper Research cites that nearly 6 in 10 large corporations are considering blockchain deployment at this time and we've also seen research that cites the blockchain services market is $700 million in 2017 and expected to grow to nearly $80 billion by 2025, so that's a year-over-year-growth of approximately 82%.

So the market is very large already in growing and you don't have to look far to see anecdotal support for that.

IBM recently just announced a deal with the Australian government that over five years is valued at nearly three quarters of a billion dollars and gaining company cited that the financial services industries already realized $35 billion of cost savings benefit from blockchain adoption. So we're seeing big deal sign.

We're seeing real value delivered, so – and we're seeing a very rapidly growing marketplace, so we're very excited to be participating in this and having an opportunity to capture that growth.

On Page 5, we guide some of the steps that we're taking to capture this market opportunity and really there is three different initiatives in parallel that we're pursuing which in this new business that we've been in for only a handful of months. First, we're building out our business and sales capabilities.

We're building our market presence with branding and marketing initiatives and we're enhancing our client execution capabilities. And some of this is through hiring and building team building, some of it is through partnership or joint ventures.

And so, we're taking a very strategic approach to building this market opportunity in this business, even up to and including acquisitions that we are currently evaluating and that are on our roadmap.

So – and in the longer-term, we see services as sort of the first step to this market, but in the longer-term we expect that software and software licensing is going to be a bigger and bigger product. So we are already engaged with pure PeerStream protocol and developing out proprietary software to address the blockchain market opportunity.

We anticipate that there will be further initiative of that we will pursue in the not so distant future.

One announcement that we made in the most recent quarter that I'd highlight is the – is that a Master Services Agreement with Chateaux Software and this really supports one of those three pillars that I mentioned, which is the execution capabilities.

Chateaux is a leading professional services platform focusing on enterprise blockchain solution and they are a partner with IBM, blockchain and Microsoft and Amazon web services. They are very talented and our partnership with them extends our capabilities to serve clients complimentary capabilities, a deep resume in delivering blockchain solutions.

So partnerships like these are helping us build out our capabilities to serve clients more effectively. With that, I'll hand it over to Judy Krandel to touch on our financial highlights for the quarter..

Judy Krandel

Great, thank you, Alex, and thanks to everyone as well for joining us on the call today. So, if you all turn to Slide 7 for a quick overview of our third quarter financial highlights and then I will go into more detail in a few moment. As you can see, total revenue in the third quarter increased 12.8% to $6.7 million.

We reported net loss of $570,000, which is an improvement of over $1.4 million versus the third quarter of last year and the net loss of $570,000 was driven principally by $576,000 impairment loss on digital tokens, which we received from ProximaX in connection with our technology services agreement.

Adjusted EBITDA was approximately $900,000, a $2 million increase from the comparable period in 2017, and net cash flow used in operations for the third quarter was $461,000 and in September 30 PeerStream had cash of $7.2 million and no debt on our balance sheet.

Now if you would move to Slide 8, I will review our revenue performance for the third quarter in more detail. So as mentioned, total revenue was $6.7 million, an increase of 12.8% when compared to the third quarter revenue of $5.9 million last year.

The increase was driven by the revenue that we recognized from our technology services agreement with ProximaX of $1.4 million, reflecting our work with them for this quarter. This was partially offsets by a decline of approximately $540,000 in subscription revenue and a decrease of $150,000 in advertising revenue across all products.

Total subscription revenue for the quarter was $4.9 million or 10% lower than the $5.4 million we reported in the third quarter of last year. To note those subscription revenue from our video properties was stable year-over-year offsets by a decline in subscription revenue primarily from our dating property.

The decrease was primarily due to a decrease in active subscribers of $17,900 or 10.6%, which resulted from lower marketing and advertising spend of approximately $310,000 for our dating properties. These results also reflect our increasing allocation of resources to our new higher growth opportunities in business solutions.

Advertising revenue for the third quarter was $331,000, a decrease of 31.1% year-over-year. The decrease was primarily due to a 20.2% decline in active users. We also believed that challenges in the digital advertising industry contributed to the decline, specifically, greater emphasis on fraud control is resulting in lower demand and pricing.

Turning to Slide 9, I’d like to hit upon some profitability metrics.

The net loss for the quarter was $570,000, a positive swing of approximately $1.4 million reflecting the revenue contribution from business solutions combined with a significant decrease in the expense base, a result of the cost reductions that were put into place in the second half of last year.

The net loss also reflects $576,000 impairment loss on digital tokens we received in connection with ProximaX technology services agreement. Adjusted EBITDA was approximately $900,000 for this third quarter, a significant increase compared to an adjusted EBITDA loss of approximately $1.1 million in the comparable period last year.

And now finally turning to Slide 10, you'll see that on September 30th, we had approximately $7.2 million in cash and equivalents. This reflects the nine month net cash flow of $3.1 million resulting from the first milestone payment of $5 million from ProximaX earlier this year. We continue to carry no debt.

In closing, PeerStream remains on very solid financial footing and has the resources on hand to support future growth. Business solutions is new, but progressing well since its launch and we see the startup of sustainable new revenue streams as we continue to execute on our strategic plan.

That concludes our prepared remarks for today and Abby I'd like to turn the call back over to you for questions..

Operator

Thank you. [Operator Instruction] And there are no phone questions at the time. So ladies and gentleman, this does conclude today's call and we do thank you for your participation. You may now disconnect – I apologize. We do have a question.

Would you like take that?.

Judy Krandel

Yes, please..

Alex Harrington

Sure..

Operator

All right, perfect. We will take our question from Henry Link, who is a Private Investor. Please go ahead..

Henry Link

Yeah, I am Hartford, Connecticut and I met you maybe six months ago in a forum in Hartford.

Anyway, I was just wondering when do you expect to get more payments from ProximaX?.

Alex Harrington

Thank you, Henry, for the question. And of course we remember meeting you, so thank you for your interest in PeerStream. So our agreement with ProximaX has two additional payments of $2.5 million each that are payable upon delivery of two additional milestones in the project. And we're anticipating that the project is sort of completed in mid-2019.

And so, the two milestones – that would be the second of the [indiscernible]. There are actually three milestones in the project. We're talking about milestone two and milestone three.

We're anticipating that milestone three will be completed by that midpoint – approximately in the midpoint of next year and that the other milestone – milestone two would happen in between now and then..

Henry Link

Great, well, thank you..

Alex Harrington

Sure..

Operator

[Operator Instructions] And there are no further questions at this time. So ladies and gentlemen, this does conclude today's call and we thank you for your participation. You may now disconnect..

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