Professional Diversity Network, Inc. (IPDN) Q1 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Professional Diversity Network’s First Quarter 2015 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, May 14, 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. It is our privilege to welcome you to our first quarter 2015 investor call. With me today are Star Jones, our President, Mr. Matt Proman, our Chief Operating Officer; Dave Mecklenburger, our CFO; Chris Wesser, our General Counsel; Jorge Perez, our EVP of Operation; and Sergio Zlobin, our EVP of Technology; and Kim Brown, our Marketing Director. I will also mention that the executive team, senior management team has been doing an outstanding job helping us prepare for this call and operating the business over the past several months. So I first like to recognize your contributions. Today, we will discuss with you the progress we have made in our diversity recruitment business. I will begin with a brief discussion of the primary areas of importance as it relates to the company including a bit of financial information. You will find more detailed information in our 10-Q which has been filed with the Securities and Exchange Commission and will be available to you on our website. After my comments our senior executive management team will take any questions you may have. Our first quarter results begin to illustrate just how potent our collective assets are and the potential we have in the near, mid and long term. The Professional Diversity Network is far larger, stronger and more viable as an operating business today than we were at this time last year. Our revenues have been materially diversified. We sold 320 different companies in Q1 and over 18,000 new premium memberships. Our greatest asset, the diverse talent we offer to recruiters, has grown tremendously in size and in quality. Registered users are up, web traffic is up, revenue is up. It is important to note this is not a holding company. The sums of the parts we have assembled are far more valuable as a whole than they were as individual assets. Our company has never been better-positioned to deliver diverse talent to employers who value diversity. Concurrent with our maturation, the U.S. economy has been experiencing significant new job creation. By every measure, the employment condition in the nation is improving. In my experience, a tightening of the labor markets correlates very favorably with demand and pricing for all recruitment services, including our specific sector diversity recruitment. Simply said in tight labor markets employers spend more money to recruit. Today, I will share with you some highlights of how we benefit from our assets, why we made the acquisitions we have made to-date and the progress we have made in integrating these assets. I am pleased to report that we now anticipate exceeding our initial goal of realizing $3 million in annualized cost savings. In addition to the $500,000 of cost savings already realized, we have an additional $3.5 million of annualized cost savings that will be implemented between the end of Q1 and the end of Q3 bringing total cost savings to over $4 million annually. In addition to our cost savings, we have benefited in other material ways from these purchases we have made. We have grown from almost 3 million registered users last year to over 10 million registered users this year. With other 6 million TCPA, which is the Telephone Consumer Protection Act-compliant opt-in. This is incredibly valuable because our new technology delivers career opportunities via mobile after an intelligent semantic matching process. Furthermore, we're adding over 250,000 new users a month versus about 40,000 new users per month at this time last year. Allow me to take a moment and articulate how the various assets that we've acquired have complemented each other. Noble Voice, which is the business that we purchased of the assets of Global Outreach, benefits the Professional Diversity Network with more traffic and more users. It harnesses innovative technology in a web-to-text-to-talk recruitment method. We have established the new product that we described during our last call called HireAdvantage[ph]. We feel that this product, which is leveraging the assets of all of our combined businesses, is very disruptive. The reason we think it's disruptive is because we're in a unique position whereby we are connecting with almost 7,000 individual job seekers per day through two of our call centers and conducting career assessments and qualification processes for business partners. The results of those conversations are a qualified applicant, a result-driven product that we are now able to deliver to our business partners at scale. NAPW benefits from the Professional Diversity Network by supplying leading professional diverse talent, which is in high-demand by our corporate recruitment clients. As Star Jones, our President, said in our last call, the talented pool at the National Association of Professional Women is extremely qualified, senior, mature, talented executives, which our customers are very excited about connecting with. Previously, NAPW did not have recruitment services so both the membership of NAPW and our business partners who are recruitment clients are benefitting greatly from this asset. Noble Voice provided cloud-based sales management, our new CRM technology to NAPW. So the NAPW sales force is now running on a new sales management technology that is state-of-the-art and highly customized for the NAPW experience. This provides us the opportunity to increase productivity of both the leads that we acquire and the conversations we're having with potential members. PDN benefits from NAPW with a new relationship-based recruitment website, which is increasing engagement. NAPW is benefitting from PDN's technology with a new relationship-based networking website for their members. PDN also benefitted from Noble Voice with access to their clients who seek to hire those job seekers who are calling into the call center. These individual assets were purchased specifically, so that each would complement each other and so that we could monetize existing assets that weren't monetized before. And that is one of the reasons that in the first quarter of 2015, we experienced over 80% gross profit margins. Some other financial highlights for the quarter are as follows. Revenue for Q1 2015 was $10.7 million versus $1.2 million in the first quarter of 2014 and $7.8 million in the fourth quarter of 2014. Net cash used in operations for Q1 2015 was $465,000. We ended Q1 with $5.8 million in cash in short-term investments and subsequently we raised in April an additional $5 million, $4.4 million net of fees in the offering we get. Our expense reductions resulting from elimination of duplicative space, human resources and efficiencies in combine regeneration are now starting to take effect and will be fully realized by the end of the third quarter. As I said, we anticipate our expense run rate will decrease by approximately $300,000 per month from the end of Q1 to the end of Q3. The new acquisitions we have enabled us to increase our reach, profile and products. Traffics to our various websites are now in excess of 1 million visitors per month up from almost 500,000 at the same time last year, doubling our web traffic. New registration growth is still climbing. In 2014, for March and April, we registered approximately 37,000 new users per month versus 218,000 new users in March and 256,000 new users in April, 2015. I am pleased with the pace of our progress going into the second quarter. We plan on working for the balance of the year to fully recognize the benefits of our investments which we have made to-date, refining our operations, new client and membership acquisition, cost control including lead efficiency and sales force optimization. Our primary objectives are to optimize our individual assets and investments across all of our platforms connecting more NAPW members to our recruitment clients, continued enhancements of our membership value to increase retention and upgrading membership service levels, expand and mature our membership success team including the new VIP concierge service that we have launched, leverage our new networking sites, continue to mature our new NAPW CRM to increase our sales productivity, test new lead generation campaigns for greater economic efficiency, but always to stay laser focused on our core business, refining, optimizing and enhancing products, services and profitability. With that said, I will invite your questions and comments and open it up to our senior management team. Operator?

Thank you. [Operator Instructions]. Our first question is from Andrew D'Silva with Merriman Capital. Please proceed with your question.

[Technical Difficulty] can you provide a little bit of context for what else could go wrong [indiscernible] I know there was an issue with [indiscernible]. Can you educate me of the process that takes place [indiscernible] possibility or likely [indiscernible]?

Operator, I don’t know if that question was from us, it was for us [Technical Difficulty].

Our next question comes from Mike Rindos with Aegis Capital. Please proceed with your question.

Yes, just a few questions from me, can you talk a little bit about how many paying subscribers you have at NAPW at this point and how that subscriber base is evolving?

That is not something that we disclose for competitive reasons. What I can tell you is that we ended the quarter with 781,000total members, which is up from about 600,000 when we made the acquisition. That is accelerating and you will notice from the comments that I made that we did bring on 18,000 new members during the quarter.

Okay.

Paid members.

Okay. And can you discuss a little bit about the profile of the candidates you’re reaching for the lead generation business? And maybe comment on how you expect that to evolve over time in terms of expanding your reach?

Right, so there is a -- the synergies here are incredible and there is a confluence of events. And so we are receiving contact information and request for job opportunities from thousands of people. As I said that our contact centers are now processing about 7,000 inbound calls a day; that’s not outbound, inbound calls a day. In addition to that we do generate a lot of interest especially on the NAPW side from web traffic and from other marketing materials that go out. Now the nice thing is that the web traffic that we receive, the inbound call traffic that we receive and the traffic we get from our marketing pieces are all value centers for both new membership generation and for recruitment. So it’s no longer just one company like NAPW running a campaign to bring on new members. Now we have three companies that are all trying to bring on members and we’re sharing those members amongst the greater ecosystem which is our business. And that’s why you see the lead efficiency occurring, and we had acceleration in that lead efficiency in March the last month of the quarter and I will say I'm very pleased with how this quarter is progressing to-date.

Great. And can you talk about any new partnerships that you’ve engaged in the past, say, couple of three months and other events and what the events calendar of looks like through the remainder of the year and how that should add to increased participation of candidates here?

I can turn that over to Star. Do you want to talk about that Star?

Well just to say that we are pleased with a new relationship with ManpowerGroup and their affiliate companies. We expect to expand that. It included a collaboration of our recruitment product HireAdvantage as well as the NAPW products and services from a corporate client perspective.

Yes, we've been very busy on the business development side. We’ve brought on a couple of very significant business partners and Star is referring to that. We do also continue to add not-for-profit organizations that build out the greater ecosystem including the National Associations of African Americans in HR and the American Association of Women MBAs.

Okay, fantastic. Again, nice quarter. I’ll get back in the queue. Thanks.

[Operator Instructions]. Our next question comes from Tony Polak with Aegis. Please proceed with your question.

Could you give us an idea of the $13.2 million in total operating expenditures for the quarter, how much of that is recurring, and how much of that is one-time cost?

Yes, Tony, it's David Mecklenburger. I’ll respond to that. For the most part it's recurring; there was a small amount of non-recurring. We had some stock-based compensation for about $122,000 in there. We did have some offsetting sublease revenue kick in during the quarter that will reduce those expenses going forward, but beyond that it was standard business cost.

Was there any severance base?

Yes.

Yes, we still continue to pay severance. That’s one of the reasons that our cost reductions are let’s say dripping through because we do have a number of situations where we are paying severance and that will be burning off in the months to come. There has been expenses that we've had paid that are largely attributed to cost control and also to the investments that we've made in the integration of these companies. So for instance, the new CRM require that we have bulk drop our engineering group so that we’re investing in engineering. Now that the new CRM has been launched and deployed we’re able to kind of trim those expenses back. In addition, we've had a number of travel occurrences to get this integration fully realized or realize to the point that we’re at today. And so I think in terms of guidance it's probably best to look at the cost reductions that we’re putting into place, and then David can get together with you anytime after the meeting and really break down the number line by line by line from there.

Okay. Thank you.

Our next question comes from Andrew D'Silva with Merriman Capital. Please proceed with your question.

Hey, guys, sorry for the technical difficulty before. I just got a couple of questions for you. As far as your cash expenses go for the first quarter, could you just maybe provide a little insight on any one-time charges that might be in there? And then, also, additional over head reductions on a quarterly from the first quarter that we could expect to be cut?

Andrew, as we just mentioned on the previous question we had a one-time stock compensation cost about $122,000 in there; we'd had some non-recurring travel expenses as we worked through our integration and implementation of some of the new technology, and that covers most of the non-recurring. Going forward, cost reductions, we’d be glad to go through that with you at a later time.

Andrew, I don’t know if you’ve heard from the opening comments but we are projecting that between the end of the first quarter and the end of the third quarter, our expense run rate will decrease by $300,000 per month.

Great, got it. I did not hear that. Thank you. And then just last question, I know there has been some headwind in for-profit education as of late. Overall macro sense, do you feel like any of your contracts or relationships related to Noble Voice are in any sort of jeopardy right now? Any insight on that would be helpful for modeling four quarters.

Actually I feel -- somebody has got to mute their line. I feel really good about the Noble Voice business. The early start of the second quarter is very promising and it's been relatively stable and successful since we made the acquisition as it relates to the lead generation expenses. Sergio, do you want to have any comment on number of clients in demand and pricing?

The only comment I would make --

And so, Sergio is our Chief Engineering Officer, and he came from Noble Voice. He has the closest pulse on that business. Sergio?

The only comment I would make in terms of our business would be that our number of clients is actually growing and we've seen billables stay very steady and we've actually seen some improvement in terms of our net payouts in some departments. So I agree with Jim, it's been very stable and promising.

With Noble Voice are you seeing any of those implementations that were discussed earlier at least starting to bear fruit with your corporate clients or is that still in beta right now?

We'll let Jorge Perez take that. Jorge is running the HireAdvantage product as well as other operations in the business. Jorge?

Sure. Yes, we have seen some really good traction. As Jim stated before, the interactions that we have with our clients based on the new valuable position that we can bring to the table has been very well received. Therefore, with that, we have started working with great companies, like Star mentioned before, with the ManpowerGroup. And one of the examples that we have is one of the bigger relationships that we have and that is expanding as we speak based on our ability to deliver the people and [indiscernible]. So that is becoming a very successful model; still in early stages in terms of the process but we want to expand to high level professional people, but nevertheless it's in the right track.

There are no further questions at this. I'd like to turn the floor back over to Jim Kirsch for closing comments.

Actually, I am going to turn my closing to Star Jones, our President, who is far more eloquent than me, and I think I've said enough for today. Star?

Well, Jim, thank you very much and thank you to the entire executive team of Professional Diversity Network, Noble Voice, and National Association of Professional Women. It has been an amazing six months of growth due solely to team work and our desire to integrate three businesses into one very powerful business. I can state for certainty that the recruitment business for diversity and inclusion is a business that is on the front burner of not only newspaper, magazine and talk show conversation it is also on the front burner of corporate America in terms of its conversation. We now know for certain that diversity and inclusion is not just the right thing to do, it's the smart thing to do, and we are poised to help take that to another level. Thank you so very much for all your time and we look forward to reporting good news again.

Thank you, operator.

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