Intelligent Protection Management Corp. (IPM) Q4 2021 Earnings Report, Transcript and Summary

Good day, and welcome to the Paltalk Fourth Quarter and Full Year 2021 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Jason Katz, Chief Executive Officer of Paltalk; and Kara Jenny, Chief Financial Officer of Paltalk. Kara, the floor is yours.

Hello, everyone, and welcome to the Paltalk Fourth Quarter and Full Year 2021 Operating and Financial Results Conference Call for the 3 and 12 months ended December 31, 2021. By now, everyone should have access to the earnings results press release, which was issued yesterday after the markets closed, around 4:30 p.m. Eastern Time. This call is being webcast and will be available for replay. In our remarks today, we will include statements that are considered forward-looking within the meaning of the securities laws, including forward-looking statements about future results of operations, business strategies and plans, our relationships with our customers as well as market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks and uncertainties that may cause the actual results to differ materially from forward-looking statements. We offer no assurance that these expectations and believe will prove to be correct. A detailed discussion of such risks and uncertainties and are contained in our filings with the SEC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information. The company does not undertake and expressly disclaims any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise as required by applicable law. On this call, we will refer to certain non-GAAP measures, including adjusted EBITDA, that when used in combination with GAAP results, provides us with additional analytical tools to understand our operations. We have provided reconciliations to the most directly comparable GAAP financial measures in our earnings press release, which was posted to the Investor Relations section of our website at paltalk.com. And with that, I would like to introduce Paltalk's Chief Executive Officer, Jason Katz.

Thank you, Kara, and good morning, everyone. We greatly appreciate you taking the time to join us on today's call. We will discuss our operating highlights and financial results for our fourth quarter and year ended December 31, 2021. Additionally, we will outline our growth initiatives, including our plan for strategic accretive acquisitions. After my opening, our CFO, Kara Jenny, will give a summary of our fourth quarter and year ended December 31, 2021, financial results. Following our prepared remarks, we will move into the Q&A portion and answer questions that were pre-submitted prior to this call. With that, I would now like to walk you through the recent highlights. Our quarterly results remain positive and consistent due to our recurring subscription revenue, which makes up the majority of our revenue and has provided us excellent predictability and visibility for our business. During the fourth quarter, we also raised $11.6 million at $7.50 per share. This capital infusion gives us added flexibility in growing our business organically and potentially through acquisitions, which we continue to explore. We believe we have laid the groundwork for the next growth phase of our business. During the fourth quarter, we invested in new marketing tools, with a focus on increasing visibility, user engagement, subscribers and customer engagement though we did not markedly increase marketing spend. In the first quarter of 2022, we forged new partnerships with marketing agencies, and these efforts are just now starting to ramp up. We plan to begin an incremental marketing spend with a careful eye on our internal metrics of users, subscribers and engagement as return on investment is very important to us. While we are looking to increase marketing and customer engagement, we'll be careful with our capital. I will now provide some insights into some of the specific growth initiatives we have recently put in place. We launched the Paltalk Feed message board functionality, aimed at increasing user engagement. It's a real-time asynchronous message board granting users the ability to interact with the platform without a video cam. The functionality of the new feature allows users to comment, add photos or videos and contribute to conversations around shared interests on a digital message board. These comments can be shared at the user's option with either friends of the user or the entire Paltalk community. The new message board feature is designed to support increased user engagement, which we expect will create value. We successfully upgraded our rewards loyalty program for our users with the launch of Paltalk Rewards Points. Gamification of loyalty programs continues to dominate as users are accustomed to earning rewards in exchange for app engagement. Paltalk now offers more opportunities for users to earn rewards, such as specialty coins, subscription stickers and flares by adding 25 new reward peers. We expect that our new internal system will incentivize valuable activity, increase revenue and generate user engagement. Our users are terrific content creators, enriching the social experience for everyone. Our data show that in-app rewards are an innovative tool through which users regularly interact, benefiting our stockholders, users and the entire Paltalk ecosystem to drive engagement with loyalty and retention benefits. We also selected yellowHEAD, an AI-powered performance marketing company, to boost growth with unified paid and organic strategies to lead our increased marketing efforts for Camfrog. yellowHEAD specializes in user acquisition, app store optimization, search engine optimization, creative production and analytics technology. yellowHEAD's ASO and SEO solutions have been instrumental in helping many brands increase their traffic conversion in users. One of the specific uses of the proceeds from our capital raise is to carefully ramp up our marketing spend and contribute to growth in users and revenue. We look forward to working with yellowHEAD and its leading performance marketing solutions. We also partnered with NoGood, a growth marketing firm that specializes in user acquisition, to accelerate user acquisition for our flagship Paltalk application. NoGood has expertise in SEO, content marketing, SEM, PPC, social ed, CRO, e-mail marketing, video marketing, SMS marketing and performance branding. NoGood has been instrumental in helping many start-ups and scale-ups dramatically increase their traffic, conversion and users. We are very excited to work with NoGood to help us as we seek to accelerate user growth and revenue growth. We also rolled out new content moderation software with the integration of Hive's Automated Content Moderation Solutions for increased user experience on Paltalk and Camfrog. We are taking the next step to ensure a safe experience for our users by cracking down on spam and objectionable content. The Hive software in its AI are automatically able to detect offensive video, audio and text through online content moderation in order to better moderate user-generated content in our video chat rooms. We will also leverage the text moderation feature of the Hive software platform to moderate our Paltalk Feed feature to ensure it is being utilized within our terms of service. In addition to these organic growth efforts, we continue to identify and analyze potential strategic accretive acquisitions. Our team continues to explore opportunities that could be additive and complementary to our existing business. As is true with all of our growth initiatives, we will move prudently and carefully measure our incremental return on investment to ensure any acquisition would result in enhancing our value and performance. On another note, this week, Paltalk's Board of Directors approved the stock repurchase plan for up to $1.75 million of the company's common stock. The stock repurchase plan is effective as of March 29, 2022, and expires on the 1-year anniversary of such date. We believe that, at times, the equity market value of the company does not fairly represent the present value of our business and its future opportunity. And the buyback program will permit the company to deploy surplus capital to opportunistically repurchase shares at attractive prices, which we believe will increase stockholder value over time. I trust this gives you a sense of some of the growth initiatives we recently implemented in order to increase our subscribers and user engagement that are expected to lead to increased revenue and profitability as we look to build stockholder value. Now I'd like to pass it off to Kara for the financial summary of our fourth quarter and year ended December 31, 2021.

Thank you, Jason. Our annual total revenue growth of 3% led to full year 2021 net income of $1.3 million. We continue to have strong liquidity and capital with over $21 million of cash on our balance sheet as of December 31, 2021. Total revenue for the 3 months ended December 31, 2021, decreased by 9% to $3.1 million compared to $3.4 million for the 3 months ended December 31, 2020. This decline was mainly attributable to a decrease in technology service revenue. Of note, subscription revenue decreased 1% and advertising revenue increased 18%. Income from operations for the 3 months ended December 31, 2021, decreased by $0.5 million to a loss of $10,000 compared to income from operations of $0.5 million for the same period in 2020. Net income for the 3 months ended December 31, 2021, decreased by $0.5 million to a net loss of [ $5,000 ] compared to income of $0.5 million for the 3 months ended December 31, 2020. And adjusted EBITDA for the 3 months ended December 31, 2021, decreased by $1 million to a loss of $0.2 million compared to the positive adjusted EBITDA of $0.8 million in the 3 months ended December 31, 2020. Total revenue for the 12 months ended December 31, 2021, increased by 3% to $13.3 million compared to the $12.8 million for the 12 months ended December 31, 2020. This growth was mainly driven by an increase in subscription revenue and advertising revenue. Income from operations for the 12 months ended December 31, 2021, decreased by $0.7 million to $0.5 million compared to $1.2 million for the same period in 2020. The income from operations for the 12 months ended December 31, 2021, included a noncash impairment loss on digital tokens of approximately $0.8 million. Net income for the 12 months ended December 31, 2021, decreased by 3% to $1.3 million compared to $1.4 million for the 12 months ended December 31, 2020. Adjusted EBITDA for the 12 months ended December 31, 2021, decreased by $0.7 million to $1.3 million compared to $2 million for the 12 months ended December 31, 2020. We will now move on to questions that were previously submitted.

The first question, what actions are you taking to increase consumer experience and engagement?

Thank you, Kara. We provided a lot of these new initiatives in our prepared remarks. Just please keep in mind that we are going to move prudently on these and be sure they have a positive effect before we accelerate our spend.

The next question, what is behind the increase in advertising revenue?

As we discussed, the introduction of advertising partners has served us well, and we are pleased with the initial growth we've seen in the area. We will continue to improve and refine those programs with those partners.

Can you explain what is behind changes in gross margin and operating expenses?

Well, in general, we incurred incremental costs associated with the uplift of the NASDAQ as well as had an increase in public company expenses. We also had an increase in marketing expenses related to the increase in and the investment in marketing tools we discussed above.

Okay. Can you provide any qualitative guidance?

I would just reiterate that with regards to spending, we have chosen marketing agencies, hired them in this quarter and look forward to working with them to optimize our spending in a measurable way. Since our historic investment in marketing has been modest, I believe partnering with leaders in the industry should be impactful.

Jason, I'll turn it back to you to close out the presentation.

Thank you, everyone, for your support and for joining us today. We are very grateful for your interest in our business. We look forward to updating the market and our stockholders with our progress on our growth initiatives organically and potential strategic accretive acquisitions, which we continue to identify and analyze. We plan on having our next quarterly results call in mid-May and plan to attend a few conferences, the first of which is the Maxim conference at the end of this month. Have a great day.

Thank you. Ladies and gentlemen, this does conclude today's event. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.