Professional Diversity Network, Inc. (IPDN) Q4 2014 Earnings Report, Transcript and Summary

Greetings and welcome to Professional Diversity Network's 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd like to remind listeners that during the call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements are described in the company's periodic reports filed with the SEC from time to time. All information discussed on this call is as of today, March 31, and Professional Diversity Network does not intend and undertakes no duty to update future events or circumstances. It is now my pleasure to introduce your host, Jim Kirsch, CEO. Thank you, Mr. Kirsch. You may begin.

Thank you, operator. Good afternoon and thank you the Professional Diversity Network 2014 investor call. Joining me today are as follows; Ms. Star Jones, our President, Mr. Matt Proman, our Chief Operating Officer; Mr. David Mecklenburger, our Chief Financial Officer; and Mr. Chris Wesser, our General Counsel. This afternoon we will provide you with the following information; our financial results and update on the integration of the National Association of Professional Women Acquisition which was purchased in September of 2014 and information about the purchase and early integration of the assets of Global Outreach Ventures which we refer to as Noble Voice. Also because we are in the last day of the first quarter of 2015, we will also be including information relating to our progress in this quarter to date. This year we have successfully diversified our revenue, we have increased our revenue and we have demonstrated revenue growth. In the fourth quarter of 2014, we increased our revenues from $1.5 million to $8.3 million. Our unaudited revenue booked as of March 30, 2015 that's yesterday, increased from $1.6 million last year to an excess of $11 million this year - $11.2 million. Additionally, our registered users increased from March of 2014 of a registered user joined of 37,000 to March 2015 to 218,000 new registered users. I’d like to take a moment and discuss with you all today the sequence of the four acquisitions that we have done to-date. And how those acquisitions are being integrated and overall affecting our company’s performance. As some of you may recall our first acquisition after our IPO was that of a technology company that was incubated out of Carnegie Mellon University named [Career Up] [ph]. That technology became the foundational technology for the Professional Diversity Network, enabled us to grow and scale our business in a relationship database, mobile up environment. Fortunately when we acquired the National Association of Professional Women, we were able to leverage this technology to build a new online networking powerful system for the National Association of Professional Women. It was incredibly valuable for us to leverage that core technology and bring NAPW from a static content environment of a website that was legacy began in 2008 and had only minor updates. The ability for us to be able to quickly adapt a new platform that once again is mobile up and built on a relationship database that introduces new users and new members to each other and does predictive announcements of career, opportunities has helped NAPW solidify their membership proposition. The second business that we purchased was a career events business whereby we performed Professional Diversity Networking events around the country. The National Association of Professional Women historically held one event in New York, their national event and that was the only event outside the chapter events that was made available to the membership of NAPW. Star Jones the President of our company has taken over our events division and has leveraged it extensively and we’ll be speaking to that later during our announcements today. But briefly I will say that we are increasing the NAPW events dramatically from one event to 18 events this year by leveraging our existing event structure and being able to deliver these events in an efficient financial way by combining them with the professional networking career events that happened earlier in the day and using the same infrastructure for the evening events for the National Association of Professional Women. The third acquisition that we did was in September of 2014, our biggest acquisition the National Association of Professional Women. The National Association of Professional Women was a $90 million revenue business and growing in a steady and substantial way and we felt it was a very good business as it was. However, in addition to the National Association of Professional Women's existing business, we saw a hidden value in an asset that’s core to NAPW and that is the professional women, who make up the membership and the value of that talent pool to the recruitment clients that we serve. Therefore, we have been aggressively pursuing with a National Association of Professional Women connecting those women with our corporate recruitment sponsors thus driving a new source of revenue that is completely accretive to the preexisting NAPW model. Finally the acquisition of Global Outreach, which we refer to as Noble Voice, which we made in the fourth quarter of 2014 brought leverage to the other three components that we had previously acquired. Noble Voice was able to leverage their existing infrastructure to assist the Professional Diversity Network and growing our online traffic and our registered users in a dramatic way. Additionally, and enabled us to fully realize the potential of our new higher advantage product, which is a results based, a results driven performance product that provides a sourced and qualified diverse candidate for our recruitment partners. Now we’re able to provide that higher advantage service also to the members of NAPW thus enhancing the membership benefits without increasing either the expense or the cost of the membership and solidifying the value of the NAPW membership. So both for the Professional Diversity Network and for NAPW Noble Voice brings accretive revenue and value to our existing members that we serve. During the fourth quarter of 2014, we achieved the following objectives; increased revenues over a diverse products stat and clients by investing in our sales and marketing efforts across the company’s product offering. Implemented expense reductions and cost controls identified in the third quarter. And I think it’s important to keep in mind that there’s a process of implementing expense cuts, it starts with the identification of those areas that we believe that we can cut and not adversely affect the business. Then we move into the implementation phase, which really was done in large part during the fourth quarter whereby we’re enacting those identified expense cuts. And then finally, which is happening more in the first quarter and second quarter of this year we're realizing the benefit of those expense cuts. And during the implementation phase, we do and have experienced additional cost resulting from some of those cuts such as we were able to close one of the facilities, one of the three facilities that NAPW had leased, which generated a cost savings for the company going forward, but we incurred cost for leasing agents and legal fees to extricate and sublease – execute ourselves and sublease that facility. We also purchased the assets of Global Outreach and we began the process of implementing Global Outreach Noble Voice across our multiple product platforms. We further designed tested and began to launch our higher advantage product and we specifically identified opportunities to benefit NAPW by providing a new mobile up relationship based online networking platform. Also identifying and scoping out a new CRM cloud based for the NAPW sales team to use to replace their legacy sales platform. And also to create a new membership success team for NAPW members. During the first quarter of 2015, we achieved the following primary objective. Finalized expense reductions, and cost controls that we implemented in the fourth quarter, implemented ongoing cost containment measures. Integrated the assets of Global Outreach Noble Voice to take advantage of the following areas including, but not limited to our extensive membership growth, growing from 37,000 to 218,000 new registered users during the month of March over last year. And I think it’s important to note without our recruitment business incurring any additional marketing expenses. And also to begin to leverage the 4.5 million opted in career seekers that came along with the Noble Voice acquisition this is an addition to our approximately 3.5 million Professional Diversity Network members and the over 600,000 National Association of Professional Women members. Thus we've grown our talent pool and our actionable talent pool extensively. Also in the quarter we launched our higher advantage product for the NAPW members and have received a very vibrant and robust response to that service confirming our expected outcome and that is providing additional value to the NAPW members also of great importance we launched the higher advantage product with our pilot business partner the ManpowerGroup and we’re now in the process of delivering sourced and qualified candidates to the ManpowerGroup and to 42 additional clients that we do business with today. Our new NAPW networking website launched in February of the first quarter. And our new cloud based CRM for NAPW went into deployment in March. We also launched the new NAPW membership success team in March. Our management team's most critical key performance indicators are KPIs have experienced material improvement thus far this year, diversification of revenues and revenue growth, expense control and new membership registrations. I’ll now turn the call over to our CFO David Mecklenburger, who will discuss our financial results and answer any questions you may have about our reported financial information. Following our CFO’s comments, I’ll turn it over to our President Ms. Star Jones, who will provide you with her insights into our company and our progress to-date. David.

Thank you, Jim. I would just like to touch on a couple of the highlights of the financial end of the business that you've experienced in the last quarter and the beginning of 2015. As Jim mentioned, the fourth quarter of 2014 we were very proud that we completed our acquisition of Noble Voice and began integrating that with Professional Diversity Network. And we also continued our integration work of the acquisition we did at the end of the third quarter the National Association of Professional Women. One of the improvements that we made very shortly after the acquisition of NAPW was we were able to sublet one of their facilities, which will result in savings for the company of over $300,000 a year. Sales continue to grow and be very strong and I compared a basis the company had bookings in the third quarter of 2014 of $1.2 million and in the fourth quarter we were able to achieve bookings of $8.3 million. First quarter of 2015 we realized $11.2 million in book sales that $11.2 is an unaudited number. Our fourth quarter was a changing quarter for us as we integrated these two businesses there were a number of non-cash items that flow through our income statement that I would like to point out, we had $565,000 of non-cash stock compensation and over $700,000 of amortized intangibles. We continue to identify cost and implement cost reductions and we're also starting to see the realization of those cost reductions in the first quarter and as we move into the second quarter.

Thank you, David. And David will be available for questions after Star's comments. I'd like to turn it over now to our President Ms. Star Jones. Star?

Thank you, Jim and David. This has been an amazing few months of growth in all aspects of our business. Our recent trip to Silicon Valley to conduct the week of diversity and inclusion activity really highlighted why after six months with PDN, I’m sure diversity recruitment is an important front burner issue and there is revenue for us to realize. My goal has been to utilize my previous relationship with corporate America companies like Google, Intel, Hyatt, McDonald's, Footloose, Viacom, Morgan Stanley, and the Federal Reserves, have all expressed specific interest in financially partnering in either our diversity marketing efforts and or utilizing our recruitment products and services for their own diversity and inclusion initiatives. Additionally, my goal has been to introduce and reintroduce PDN NAPW and our products and services to the corporate marketplace. These relationships are being fostered so that they translate not only into marketing and promotional relationships but products and services, sales to a variety of avenues. One new product area of service that is the perfect blend of our PDN corporate clients and our NAPW products and services is the NAPW corporate membership program. NAPW corporate members will be selected from local businesses, large corporations, specific groups, women’s organizations, society and local community groups. This program is designed to provide corporate members the opportunity to align with NAPW, one of the largest professional women’s networking organizations in the country while conveying a commitment to gender diversity and inclusion. The corporate membership program enhances and strengthens the NAPW overall membership strategy by increasing the number of professional women connected to Corporate America on our membership roles. And then also offered the opportunity for our company to increase visibility and the diversity and inclusion phase to a valuable demographic like our individual membership offering different benefit packages will be offered to accommodate corporate member priority and membership priority and enhancing the membership value proposition has really been our major goal this quarter for NAPW. Specifically, we have added the following already in 2015, as you mentioned our new website NAPW.com is bringing NAPW to the next level of member engagement through online tools and resources helping every professional women member taking advantage of their membership. In addition to uploading their resume, members now have the ability to import their member profile through LinkedIn and Facebook. Members can now follow over 200 local chapter group pages and instantly connect through the activity walls. And launching in the next – the next 60 days we expect that members will be able to connect to industry specific group pages to learn about industry trends and have access to master calendar that notify and allows registration for attendance at national, regional, local partner and member sponsored events across the United States. We’ve also launched the new Career Center on NACW.com, the members can find professional tools, resources, and job opportunities all online. Members are now able to opt-in to higher advantage on recruitment products that delivers an actionable and qualified candidate to employers. Members can get their resume for free by a professional career consultant, they can use resume, our patented resume - technology that uses keywords and phrases tailoring resumes to specific job postings. And members can now search over a 100,000 jobs in the NAPW Career Centers and can create customized job alerts straight to their inbox. As Jim mentioned, we have also grown our event business. NAPW members can take advantage of monthly meetings, events and programs at more than 200 local chapters throughout the United States. Additionally, we have indeed created more events for members to engage and more important networking moments. We went from three events last year to five regional summits a national summit, multiple career fares and several key city powered networking events or now a combination of 30 events nationwide. We are eagerly anticipating our upcoming regional and national networking summit plans in the spring and summer in Dallas, Washington DC, Miami, Chicago, Los Angeles and our National Networking Summit in New York City in the fall with an expectation of thousand women or more each. Career coaching and career advancement opportunities will be provided for all members at every summit, giving members access to an array of employers, sponsors, women partners and exhibitors. As 40% of our members are small business entrepreneurs, we’ve increased and improved our benefit design to help our members grow and promote their own businesses inside and outside of NAPW. For those members in HR or that own their own businesses, NAPW intends to offer a free job package, we believe is valued at $2,000 to reach the over 8 million members in our expanded professional network. And we anticipate that the NAPW VIP member will be able to create their own business group page for added business promotions along with a branding advisor, who will help them building. We’re also bringing more continuing education to our members so they can complete or continue their college degree and become even more qualified for better opportunity. Starting in May 2015, NAPW anticipate that it will begin offering members, the opportunity to continue or complete their education and a fully credited non-profit institution of higher learning who are new operation graduate program. The school that will be a part of operation graduate will offer a variety of degree levels from associates to bachelors to masters in a wide range of field as well as the pathway to convert professional learning and on the job experience into academic credit, saving time and money. NAPW also anticipate being able to offer scholarship of a $1000 to $2000 for members and their families giving them the opportunity to finish their degree. As you can tell we’ve been very busy. Every added part to service has been designed to increase the membership value proposition, service to members needs and make membership in NAPW, a long term engagement that is both retainable and sustainable. Now effectively communicated this renewed NAPW to members and the public is critical for its success. So we have both an internal and an external communication strategy that has and will be launched in the next 60 days. Internally, the NAPW membership services team has been launched this month. The MST is a more focused customer service initiative that we expect once fully implemented will contact new members within the first 24-hours to provide membership education. Contact members a minimum of three times per year to ensure that they’re harnessing the power of NAPW and provide a technology driven dashboard if you will for the membership services team to measure engagement and reach out the members, who are not engaging robustly. And then externally that is where I get to do, what I do best. The first week of May, we expect to launch a nationwide media bliss in the form of a satellite television, radio, print and digital media tour that will outline and promote the new NAPW. Finally research tells us that a diverse and inclusive workforce drive economic growth, captures a greater share of the consumer market, fosters a more creative and innovative workforce and is necessary to build an competitive economy in a globalized world. Utilizing the collective strength of our members, partners and unique proprietary platform, PDN and our subsidiaries are positioned to be the leader in business diversity recruiting, networking and professional development for women minorities, veterans, the LGBT community and disable person. Not only it is the right thing to do, it is now the smart and business savvy thing to do. Thank you, Jim.

Thanks Star and I appreciate your comments. It is clear that we have a very large and approachable market and diversity recruitment is becoming more and more important financially in the United States of America. Additionally, the marketplace is firming up for the recruitment sector across the Board due to the lower unemployment rate and scarcity in human capital. By all estimates this will continue as the baby boomers leave the workforce and our population is not our existing population of citizens in United States is not large enough to support the growth that we anticipate the country will have. If that is the case if market continues, if the market conditions continue to be stable and as they are today. We anticipate all recruitment businesses will do better including the Professional Diversity Network. But we have carved out a very important market position for ourselves as the leader and the go-to-resource in diversity recruitment. In the past two years we’ve made significant progress in establishing the company as the very centric market leader in diversity recruitment. The assets of our acquired companies have all been carefully selected to provide enhanced values, which transcends their unique capabilities. In essence 2+2 does not equal 4 when we talk about the combination of these assets. The NAPW members are a valuable talent pool for our diversity recruitment clients. Simply said, we can monetize and are monetizing those members in a significant and important way, while at the same time driving enhanced value to the NAPW membership. Our higher advantage product we’ve added membership benefits to the NAPW members, who are seeking a new or a better career. But it also drives additional revenue to the company from the marketplace of connecting those individuals with an employer. Noble Voice benefits from being in the PDN family, because they’re now able to realize revenue from recruiters, who find value in the career consultations that Noble Voice is having. Noble Voice is currently processing approximately 4,000 inbound calls on a daily basis for individuals who are seeking a job. When we acquired Noble Voice there was no revenue associated with recruitment and those conversations and we’re changing that in an accretive manner. Furthermore our online recruitment business has experienced enhanced value due to an increased in traffic engagement and in new registered users as demonstrated by our year-over-year monthly growth up from 37,000 registered members to 218,000 registered members in March alone. Our plan is to continue to increase our membership add more value to our members and our business partners and realize the benefits of the cost controls and expense cuts enacted in the first quarter of 2015. Our revenue has increased from a run rate of $6 million to over $40 million in just 12 months. And what’s important is we’re still in the early stages of our growth trajectory. With that said, operator we will turn it over to the callers for questions.

[Operator Instructions] Our first question comes from the line of Andrew D'silva with Merriman Capital. Please proceed.

Good afternoon, thanks for taking my call. A couple of quick questions, real fast, what were fourth quarter revenues for the last - fourth quarter and can you also breakout what sales were for NAPW as well?

I’ll take that. Fourth quarter revenues were $8.3 million was bookings.

Which closely matched revenues.

Do you want to take it David.

Sure. And Andrew what was the second part of your question? Andrew D’silva: What were revenues for NAPW for the quarter?

The bookings - sorry Andrew, the sales for NAPW for the fourth quarter were just over $6 million. Andrew D’silva: Okay good. Did you initially have to ratchet up spending, recruitment spending for NAPW after you made the acquisition and should we expect that the level during the fourth quarter is the level we should model for going forward or spending starts to go down after this initial uptick?

That’s a good question, Andrew and what we found with the acquisition of NAPW, we purchased it right of the third quarter, the company had been in a state where they had not been able to purchase the leads and spend money the way they had wanted to. So upon our acquisition, we primed the pump and took care of some older accounts payable that they had and help the company get back on its feet from marketing perspective and the accounting treatment of that required us to expense those purchases in the fourth quarter even though a lot of them are driving sales into the first quarter. So to answer your question, you will not be seeing that level of spending going forward and the expenses we do expect them to flatten while the sales grow. Andrew D’silva: Okay. And then with – are we calling it a Global Outreach Ventures or Noble Voice now – it's Noble Voice right.

Noble Voice. Andrew D’silva: Okay. What was the gross margins for that division such can you give a sense of that going forward and then was the primary reason for the increased user interaction across all sites due to the acquisition of Noble Voice, you had announcement in February in one day acquiring 10,000 users.

Yes Andrew to answer your question on the margins, the Noble Voice margins were seeing north of 60% gross profit margins and I’ll let Jim address the question about the traffic.

So Andrew the acquisition of Noble Voice provided us with very complementary traffic and we’re able to leverage their existing traffic but we've also been able to implement the technology and the marketing strategy that Noble Voice was using for their company as a standalone business into the greater professional diversity network which gave us dramatically enhanced results. Yes we did announce that we hit 10,000 members in a day and I think you can see that from a 218,000 new registered user mark - in March that that's not an anomaly. Andrew D’silva: Okay. Got it. Thanks for taking my call and good luck this year. Andrew D’silva: Thank you.

[Operator Instructions] Thank you. There are no further questions in queue at this time. I would like to turn the floor back over to management for closing remarks.

Thank you, operator. On behalf of our senior management team, who is on the call today and also for our newest additional members from Global Outreach, Noble Voice and Mr. Jorge Perez, I want to thank you for joining the call today. We are very excited about 2015. We’re laser focused as I said and making sure that we are managing this company to profitability. We think it’s very important that we are physically disciplined and that we continue to demonstrate the revenue growth that we've had and dial that into a long term profitable business in a very large addressable market. Thank you for joining our call today. And as always we look forward to your follow-up calls and questions. Thank you very much and have a pleasant afternoon. Good bye.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.